Secured Transactions Update - Gonzaga University School of Law

Secured Transactions UpdateStephen L. SepinuckGonzaga University School of LawSpokane, Washington

Secured Transactions Update Page 1Scope IssuesSECURED TRANSACTIONS1. In re Biondo,2012 WL 162285 (Bankr. D. Md. 2012)Article 9 did not apply to debtor’s assignment to bank of his right to termination benefitsfrom his employer because the assignment was absolute even though the debtor retained theright to a surplus after payment of the loan.2. In re Wolverine Fire Apparatus Co. of Sherwood Michigan,465 B.R. 808 (Bankr. E.D. Wis. 2012)Truck dealer that, after abandoning sales agreement with the debtor, allowed debtor to takepossession of truck but retained title, never placed the manufacturer’s warranty in effect fora new buyer, continued to expose the truck to potential buyers through its listings on itsinventory list and commercial trader database, kept its inventory lender informed of thetruck’s location, never sent a bill showing an amount due, and never listed the truck on itsaccounts receivable remained the owner. However, the transfer of possession was not a merebailment but also a consignment because the truck remained for sale, and thus the truckbecame available to the debtor’s creditors and property of the debtor’s bankruptcy estate.3. Cox v. Community Loans of America, Inc.,2012 WL 773496 (M.D. Ga. 2012)Car title pawn transactions with members of the armed services were not sales with an optionto repurchase but secured loan transactions that are void under the federal Military LendingAct, and consequently the arbitration clause in the agreements were also void.4. Delphi Automotive Systems, LLC v. Capital Community Economic/Industrial Dev. Corp.,2012 WL 967568 (Ky. Ct. App. 2012)Pursuant to Kentucky’s non-uniform § 9-109(d), which excludes from the scope of Article9 “a public-finance transaction or a transfer by a government or governmental unit,” atransaction in which a state agency leased equipment to a private entity for 84 months, afterwhich the private entity was to become the owner of the equipment, was truly a sale with aretained security interest and was excluded from Article 9. Accordingly, the state agencywas not required to perfect its security interest and because its security interest predated thatof the private entity’s secured lender, the state agency’s interest had priority.5. In re Palmdale Hills Property, LLC,457 B.R. 29 (9th Cir. BAP 2011)Repurchase agreements relating to mortgage loans were true sales, not secured transactions,even though the putative buyer had an obligation to resell identical loans and the loans wereunique because the transaction documents unambiguously indicated the parties’ intent wasthat the transaction be a true sale.

Secured Transactions Update Page 26. Brenner Financial, Inc. v. Cinemacar Leasing,2012 WL 1448048 (N.J. App. Div. 2012)Non-terminable five-year lease of limousine calling for payments of over $160,000 withoption to buy at the end for $600 was a sale with a retained security interest because theoption price was nominal.7. VFS Leasing Co. v. J & L Trucking, Inc.,2011 WL 3439525 (N.D. Ohio 2011)Six-year Finance lease of four trucks that gave lessee the option to purchase at the end of thelease term for 8.84% of the purchase price the lessor paid was a true lease because the optionprice was not nominal.8. In re HB Logistics, LLC,460 B.R. 291 (Bankr. N.D. Ala. 2011)TRAC leases of trucks were true leases due to Alabama and Texas statutes providing that“a transaction does not create a sale or security interest merely because the transactionprovides that the rental price is permitted or required to be adjusted . . . by reference to theamount realized upon sale or other disposition of the motor vehicle.” TRAC leases governedby Minnesota law are also true leases due to a substantially similar Minnesota statute. TRACleases governed by Mississippi law, which lacks such a statute, were also true leases basedon the economic realities and the fact that the lessor was guaranteed to receive 25% of thesale price when the vehicles are sold.9. In re Turner,2011 WL 2490600 (W.D. Mo. 2011)Putative lease of automobile was a true lease because the lessee could terminate at any timewithout charge. Relief from the stay to repossess the automobile will be denied if the debtorproposes a plan calling for payments of $120/month even though the lease calls for paymentsof $49/week.10. Gibraltar Financial Corp. v. Prestige Equipment Corp.,949 N.E.2d 314 (Ind. 2011)Summary judgment was improperly granted on whether six-year lease of punch pressrecently purchased by lessee was a true lease. Although the lessee’s options to buy in yearfive and at the end of the lease term did not pass the bright-line test, further evidence wasneeded about evidence of the expectations of the parties at the time they entered into thetransaction, including to such factors as the expected value of the punch press on the optiondates and whether the only economically sensible course for the lessee would have been toexercise the option.

Secured Transactions Update Page 311. In re Del-Maur Farms, Inc.,2011 WL 2847709 (Bankr. D. Neb. 2011)Non-cancellable lease of equipment with option to purchase at the end for 10% of the initialpurchase price and, if the lessee does not exercise the option, an obligation to renew the leasefor one year for a rent that exceeds option price was a sale with a retained security interest.12. In re Harbour East Development, Ltd.,2011 WL 3035287 (Bankr. S.D. Fla. 2011)Consensual lien on debtor’s interest as seller in forfeited deposits made in connection withcontracts to sell real estate was governed by real estate law, not by Article 9. Even if Article9 applied, the mortgagee was perfected because the escrow agent had possession of the fundson behalf of the mortgagee and money, when deposited into a bank account, is still money.13. Textron Financial Corp. v. Weeres Industries Corp.,2011 WL 2682901 (D. Minn. 2011)Inventory lender’s claim against manufacturer for breach of agreement to repurchaserepossessed inventory of its dealers was not governed by Article 9, and therefore lender hadno duty to manufacturer to sell the inventory in a commercially reasonable manner. Thelender’s general duty to mitigate damages was waived in the repurchase agreement and, inany event, did not require the lender to refinance the inventory with another dealer or permitthe manufacturer to make interest payments to cure the defaulting dealers’ defaults.14. In re Salander O'Reilly Galleries,453 B.R. 106 (Bankr. S.D.N.Y. 2011)Law of New York – where the debtor was located – governed the effect of the debtor’sconsignment agreement, not the foreign law chosen in the parties’ agreement. As a result,clause calling for arbitration under the law of the Channel Islands would not be enforced.Attachment Issues– Existence of Security Agreement15. Roswell Capital Partners LLC v. Beshara,436 Fed. Appx. 34 (2d Cir. 2011)Lender’s security interest in debtor’s assets was extinguished when the lender converted thedebtor’s notes to equity, and nothing in the documents restored the lender’s priority whenequity was re-converted to debt. Unclear if court was saying, as the lower court did, that thesecurity interest did nor re-attach at all or merely that the re-attached security interest did nothave priority.

Secured Transactions Update Page 416. Branch Banking & Trust Co. of Virginia v. M/Y BEOWULF,2012 WL 464002 (S.D. Fla. 2012)Summary judgment denied on whether bank acquired a security interest in a yacht becausethe putative debtor signed only in his individual capacity and, while he did own the vesselat some point, it remained unproven whether he owned it at the time he signed the securityagreement given that a second builder’s certification and first transfer of title filed with theCoast Guard five months later described a wholly-owned corporation as the owner, as didother documents.17. Monlezun v. Lyon Interests, Inc.,76 So. 3d 628 (La. Ct. App. 2011)Because a resolution of a corporations board of directors authorized the president to pledgecorporate equipment as collateral for loan to himself and his wife, and the resolutionexpressly indicated that it would remain in force until the lender received notification of itsrevocation, the president was authorized to pledge the collateral for a second loan after hehad paid off the first.18. In re Bucala,464 B.R. 626 (Bankr. S.D.N.Y. 2012)Promissory signed in connection with sale of manufactured home which provided that: (i) thelender could file a motor vehicle lien against the home; (ii) interest would be added to thedebt “and secured by the DMV lien”; (iii) the lender was to discharge the lien when the notewas fully paid; and, most important, (iv) if the borrower defaulted the home could berepossessed, was sufficient to create a security interest. It did not matter that the notemisidentified the model year of the manufactured home, especially given that the salescontract properly identified the model year and the documents can be read together.19. In re Buttke,2012 WL 529241 (Bankr. D.S.D. 2012)Application for certificate of title and certificate itself, each of which identified a securityinterest, did not create or provide for a security interest, and thus did not constitute a securityagreement.20. Lopes v. Fafama Auto Sales,2011 WL 6258818 (Mass. Ct. App. 2011)Combination of two documents signed by the car buyer – a bill of sale stating that the cardealer had a right to repossess the car for nonpayment and a certificate of title applicationlisting the dealer as sole the lienor – constituted an authenticated security agreement.

Secured Transactions Update Page 521. First Premier Capital LLC v. Brandt,465 B.R. 801 (N.D. Ill. 2011)Security agreement that mistakenly purported to grant a security interest in the assets of thecreditor, rather than the debtor, could potentially be reformed. As a result, the bankruptcycourt’s approval of a settlement between the creditor and the trustee that acknowledged thevalidity of the creditor’s lien but created a carve-out for the trustee was not an abuse ofdiscretion.22. Quality Ford Auto. Sales, Inc. v. Ford Motor Credit Co., LLC,2011 WL 2935161 (Ky. Ct. App. 2011)Corporate car dealership that granted signed security agreement with financier remainedbound by the agreement after ownership of the corporation changed.23. Hadassah v. Schwartz,2011 WL 4862757 (Ohio Ct. App. 2011)Judgment creditor could garnish funds law firm held in client trust fund for judgment debtorbecause there was no written agreement granting the law firm a security interest.24. In re Debaeke,2011 WL 5563543 (Bankr. E.D. Mich. 2011)Because, in the court’s judgment, the defendant’s $1,000 payment to the plaintiff was a giftnot a loan, the defendant could not have a security interest in the plaintiff’s go-cart that thedefendant was storing.25. Laborers Pension Trust Fund-Detroit and Vicinity v. Interior Exterior Specialists Co.,2011 WL 5211481 (E.D. Mich. 2011)Written agreement pursuant to which a judgment defendant transferred funds during appealto a special account held by the judgment creditor, and which provided a source for paymentof the judgment if the appeal was overruled, was a security agreement even though it did notexpressly use the words “security interest.” Because the judgment creditor’s interest wasperfected by possession, it was senior to the rights of a judicial lien creditor that hadattempted to garnish the funds.26. State v. Pressley,2012 WL 1371389 (Ala. Civ. App. Ct. 2012Grandmother who provided funds for the purchase of truck for which the certificate of titleidentified her grandson as the owner did not have a security interest because there was nowritten security agreement. Consequently, the grandmother was not a bona fide lienholderfor the purposes of Alabama statute authorizing forfeiture of vehicles used in to convey acontrolled substance.

Secured Transactions Update Page 6– Description of the Collateral27. In re Kuranda,466 B.R. 39 (Bankr. E.D. Pa. 2012)Debtor who had granted lender a security interest “in the proceeds of [a specified] lawsuit”that had already been reduced to judgment had in fact granted a security interest in thejudgment itself, not merely in the monies later collected on the judgment by the debtor’sbankruptcy trustee.28. In re TMST, Inc.,2012 WL 589572 (Bankr. D. Md. 2012)Security Agreement executed by debtor-loan servicer covered only the debtor’s rights as“owner” under various servicing agreements, not the debtor’s rights as “servicer.” Becausethe owner had the right to terminate and replace the servicer without cause, the rights asowner were substantially more valuable than the rights as servicer. A combined sale by thedebtor’s bankruptcy trustee of all rights would be allocated 95% to the rights as owner and5% to rights as servicer, with the former therefore qualifying as proceeds of the collateral.29. Monticello Banking Co. v. Flener,(6th Cir. 2011)Summarily affirming lower court ruling that security agreement describing the collateral as“all Debtor’s . . . [deposit] accounts maintained at . . . [any] financial institution . . . ,including, but not limited to, those deposit accounts styled and numbered as follows: . . .Certificate of Deposit # -9536 at Monticello Banking Company . . . [;] . . . Certificate ofDeposit # -2581 at CDARS; . . . together with current [and future] deposits in the depositaccount(s) . . . as well as all rights, title, interests and choices in actions associated with thedeposit account(s)” was insufficient to cover debtor’s interest in deposits managed throughthe Certificate of Deposit Account Registry Service because the debtor’s rights were asecurity entitlement and the language did not mention “security entitlements,” “investmentproperty,” or describe the “underlying financial asset.”30. U.S. Bank v. Hanson,2011 WL 2847414 (D. Idaho 2011)Brick machine that turns sawdust into wood bricks and which was integrated with existingequipment of wood pellet manufacturer by connection to a conveyor system is an “accessory”to listed collateral within the meaning of the manufacturer’s security agreement.

Secured Transactions Update Page 731. In re O & G Leasing, LLC,456 B.R. 652 (Bankr. S.D. Miss. 2011)Description of collateral as “Performance Drilling Rig # 3” and four other numbered rigs wassufficient even if the exhibit providing a more complete description was not attached whenthe debtor signed the security agreement because the description was sufficient “to raise ared flag to a third party, so as to indicate that more investigation may be necessary todetermine whether an item is subject to a security interest.” In addition, the exhibit is partof the security agreement even though attached after the debtor signed it.32. Regions Bank v. Bric Constructors, LLC,2011 WL 6288033 (Tenn. Ct. App. 2011)Description of collateral in security agreement as “Hydraulic Excavator w/ Tramac V1600Hammer Eq. # C0442 and a 36" HD Hensley Bucket Stock # A6775” was sufficient andcreated no confusion about which hydraulic excavator was covered.33. In re Inofin, Inc.,455 B.R. 19 (Bankr. D. Mass. 2011)Original security agreement and financing statement that described the collateral to be“motor vehicle installments sales contracts purchased by Debtor with the proceeds of loansfrom Secured Party and assigned and delivered to Secured Party” did not include chattelpaper not financed by the secured party. Subsequent loan agreement providing that “[a]ssecurity . . . , Borrower shall assign and deliver to Lender, . . . Installment Contracts”removed the requirement that the secured party provide the financing for collateralizedchattel paper but the secured party gave no value for that additional collateral.34. In re HT Pueblo Properties, LLC,462 B.R. 812 (Bankr. D. Colo. 2011)Security agreement that described the collateral to include “[a]ll accounts, generalintangibles. . . [and] rents . . .arising out of a sale, lease, consignment or other disposition ofany of the . . . Collateral” did not cover room rents of hotel because there was no dispositionof the property, merely operation of the property. Deed of trust that purported to grant aUCC security interest in “all present and future rents revenues, income, . . . and other benefitsderived from the [subject] Property” does not clearly grant a security interest in the fees,charges, accounts, or other payments for the use or occupancy of rooms and in any eventsuch an interest is in personalty and is governed by Article 9, and therefore must be createdin the security agreement, not in ancillary documents.

Secured Transactions Update Page 835. Algonquin Power Income Fund v. Christine Falls of New York, Inc.,466 B.R. 175 (N.D.N.Y. 2011)Claim for engineering malpractice could not be assigned under Connecticut law (prior toenactment of revised Article 9) and, even if it could be, security agreement describing thecollateral as “any interest in any kind of property or asset, whether real, personal or mixed,and whether tangible or intangible,” while sufficient to cover a chose in action, was notsufficiently specific to cover the existing malpractice claim. Subsequent agreement covering“actions and rights in action . . . arising from or relating to any of the property described”also did not cover the malpractice claim because the claim did not involve damage toproperty. Moreover, no security interest attached when the malpractice action transformedto a judgment, bond, and contract claim because if a security agreement does not grant asecurity interest in a tort claim or its proceeds, no subsequent transformation will “magically”result in an automatic attachment of those proceeds.36. In re Moore,465 B.R. 111 (Bankr. N.D. Miss. 2011)Description of collateral as “[a]ll crops, and farm products whether any of the foregoing isowned now or acquired later; whether any of the foregoing is now existing or hereafter raisedor grown” was sufficient to cover future year’s harvest, as well as the proceeds thereof.37. In re Southeastern Materials, Inc.,452 B.R. 170 (Bankr. M.D. N.C. 2011)Description of collateral as” all of the Debtor’s . . . equipment, wherever located,” but whichalso stated that “the address where the Debtor keeps and maintains the equipment is . . .Columbus County,” created a factual issue as to whether the parties intended to encumberequipment located in a different county.– Obligations Secured38. In re Duckworth,2012 WL 986766 (Bankr. C.D. Ill. March 22, 2012)Security agreement that described the secured obligation as a note executed on December 13,2008 was effective even though the note was actually executed and dated December 15,2008. The absence of a future advances clause in the security agreement prevented thecollateral from also securing a second loan made in 2010 even though the second noteexpressly provided that “this Note is secured by Security Agreement dated December 13,2008.” Although the loan documents included an Agreement to Provide Insurance, by whichthe debtor promised to purchase insurance to protect the secured party's interest in thecollateral, including crops, that was ineffective; pursuant to the Federal Crop Insurance Act,which preempts state law, the exclusive method by which a creditor may obtain a securityinterest in the proceeds of insurance provided by the Federal Crop Insurance Corporation isthrough an assignment accepted by the FCIC.

Secured Transactions Update Page 939. Bank of America v. Ledgercare, Inc.,2012 WL 1591800 (Conn. Super. Ct. 2012)Security agreement executed in 2002 to secure obligation on promissory note also securedby mortgage did not cover indebtedness under 2007 line of credit despite language in securityagreement purporting to cover “all indebtedness and obligations now or hereafter oweingfrom the Debtor to the Bank of whatever kind or nature, whether presently existing orhereafter arising” because the security agreement predated the note and mortgage and thereference to future debt was necessary to cover that transaction, not the line of credit.40. Union Bank Co. v. Heban,2012 WL 32102 (Ohio Ct. App. 2012)Although each of the security agreements the debtor authenticated contained a crosscollateralizationclause purporting to make the collateral secure all of the debtor’s obligationsto the bank, the clauses were insufficient to overcome the fact that the promissory note forone loan – entered into after one secured transaction and before several others – expresslystated that the loan was unsecured.41. In re Dumlao,2011 WL 4501402 (9th Cir. BAP 2011)Language in consumer’s car loan agreement with credit union providing that the vehiclesecured “any other amounts or loans, including any credit card loan, you owe us for anyreason now or in the future” was effective under revised § 2-204 to cover credit-cardobligation, but case was remanded to determine if clause violated the duty of good faith orwas unconscionable given the adhesive nature of the agreement and the small font used.42. In re Alaska Fur Gallery, Inc.,457 B.R. 764 (Bankr. D. Alaska 2011)Cross-collateralization clause in bank’s commercial security agreement unambiguouslycovered future loans, even if unrelated, and therefore the borrower’s inventory, equipment,accounts, chattel paper, and general intangibles secured subsequent real estate loans.Revised Article 9 rejects any requirement that the loans have a related purpose, which hadpreviously been the law in Alaska, although that rule may still apply in consumertransactions.43. In re Zaochney,2011 WL 6148727 (Bankr. D. Alaska 2011)Dragnet clauses in both car loan and line-of-credit agreement between credit union andconsumer were enforceable to make car secure the line-of-credit obligation because revisedArticle 9 rejects the requirement that the loans have a related purpose.44. In re McGregor,449 B.R. 468 (Bankr. D.S.C. 2011)Debtor’s obligations on both the credit card and the truck loan were cross-collateralized bylanguage in security agreement (court assumed, without analysis, that clause was effective).

Secured Transactions Update Page 1045. Educators Credit Union v. Guyton,805 N.W.2d 736 (Wis. Ct. App. 2011)Automobile securing debtor’s initial loan from credit union also secured debtor’s credit carddebt to the credit union because the initial loan agreement expressly provided that thecollateral secured all amounts owing now or in the future to the credit union on other loansand the subsequent credit-card agreement provided collateral securing other loans from thecredit union also secured the credit-card debt.– Rights in the Collateral46. In re TerreStar Networks, Inc.,457 B.R. 254 (Bankr. S.D.N.Y. 2011)Although federal law prohibits a security interest from attaching to an FCC license itself, asecurity interest can attach to the “economic value” of the license; because this lien attachedprepetition, § 552 of the Bankruptcy Code does not apply even if, on the petition date, noproceeds of the license existed and there was no agreement to sell the license.47. In re Tracey Broadcasting Corp.,2011 WL 3861612 (D. Colo. 2011)Because federal law provides that no broadcast license be “transferred, assigned or disposedof in any manner,” without approval of the FCC, such licences are not property to which asecurity interest may attach. While it may be possible to grant a security interest in the rightto future proceeds from an approved sale of a license, if, on the petition date, there is nocontract for sale approved by the FCC, § 552(a) prevents the security interest from reachingany postpetition sale proceeds.48. U.S. v. Corry Communications,2011 WL 4572012 (W.D. Pa. 2011)Because no lien can attach to an active broadcast license, merely to the proceeds of such alicense, the federal tax lien on a broadcaster’s assets extended only to the sale proceeds ofthe license, not to the license itself, and thus the government could not foreclose on thelicense now owned by the buyer.49. Concorde Equity II, LLC v. Bretz,2011 WL 5056295 (Cal. Ct. App. 2011)Although state law prohibits the granting of a security interest in a liquor license, the lender’ssecurity interest could and did attach to the proceeds of the a liquor license sold by a courtappointedreceiver.

Secured Transactions Update Page 1150. In re Garrison,462 B.R. 666 (Bankr. W.D. Ark. 2011)Restrictions on transfer of corporate stock are governed by the state of incorporation.Statement on reverse of stock certificate for shares in close-held corporation providing thatthe shares “may not be offered, sold, transferred, pledged or hypothecated in the absence ofan effective registration statement for the shares under the [Securities Act of 1933] and underany applicable state securities laws, or an opinion of counsel to the corporation that suchregistration is not required as to such sale or offer” was ineffective to prevent theshareholders from granting a security interest in the shares because it prevents only a publicoffering and the shareholder’s pledge was an exempted transfer. However shareholderagreement that prohibited shareholders from transferring or encumbering any stock withoutthe express written consent of all the shareholders, even though not noted on the stockcertificate, was effective to prevent the creation of a security interest once the lender hadknowledge of the restriction. The court did not explain why, given that the debtorsauthenticated the security agreement before that time, subsequent refinancings triggered theeffectiveness of the restriction.51. In re Westbay,2011 WL 2708469 (Bankr. C.D. Ill. 2011)Although LLC agreement required the written consent of all members to use of the debtor’smembership interest as collateral, that requirement was impliedly waived because all themembers knew of and benefitted from the transaction, which was in exchange for a loan ofworking capital to the LLC. No discussion of § 9-408.52. In re McKenzie,2011 WL 2118689 (Bankr. E.D. Tenn. 2011)2011 WL 6140516 (Bankr. E.D. Tenn. 2011) (subsequent decision)No security interest attached to the debtor’s LLC interest because the operating agreementrequired the prior written consent of the LLC’s Board of Governors, and no such consent wasobtained. The court asked for more briefing on whether § 9-408 allows a security interest toattach to the proceeds of the LLC interest despite a restriction on assignment in the operatingagreement.Pursuant to subsequent decision, debtor could grant a security interest in whollyowned LLCs regardless of restrictions in membership agreement because consent to thetransfer is presumed. As to remaining LLCs, secured party failed to submit evidence that thedebtor’s interests were freely transferrable. While § 9-408 does override restrictions on thetransfer of an interest in general intangibles, such as partnership interests and some LLCinterests, by failing to submit the operating agreements, the secured party failed to prove thatthe LLC interests were general intangibles and not securities.

Secured Transactions Update Page 1253. Meecorp Capital Markets, LLC v. PSC of Two Harbors, LLC,2011 WL 1119191 (D. Minn. 2011)2011 WL 6151487 (D. Minn. 2011) (subsequent decision)Summary judgment denied on whether lender acquired a security interest in LLC interestsbecause LLC agreements required unanimous consent of all members to the creation of asecurity interest and it was not clear that all the members had consented.Pursuant to subsequent decision, guarantor did not grant a security interest in his LLCinterest because there was no evidence that written notice was provided to all members, asrequired by the member control agreement. The guarantor also did not grant a securityinterest in his general partnership interests because the member control agreements prohibittransfer of governance interests without the unanimous, written consent of all other membersand the resolutions of the Boards of Governors consenting to the transfer were insufficientto satisfy this requirement. No discussion of § 9-408.54. In re Rabinowitz,2011 WL 6749068 (Bankr. D.N.J. 2011)Although LLC operating agreement purported to make void any grant of a security interestin a member’s LLC interest without the consent of a majority of members, state courtjudgment in action by lender against member and stating that the security agreementremained in full force and effect was binding on the debtor’s bankruptcy trustee pursuant tothe entire controversy doctrine because the validity of the security agreement could have beenlitigated in the state action.55. Lebedowicz v. Meserole Factory LLC,941 N.Y.S.2d 538 (N.Y. Sup. Ct. 2011)Security agreement signed by members of LLC on behalf of the LLC, and not in theirpersonal capacities, did not grant a security interest in the members’ LLC interests becausethe LLC itself did not have rights in those membership interests.56. Variety Wholesalers, Inc. v. Salem Logistics Traffic Services, LLC,723 S.E.2d 744 (N.C. 2012)Whether security interest granted by freight bill processor attached to the funds provided tothe processor by its clients was a question of fact not appropriate for summary judgment withrespect to clients’ claim for conversion against the secured party. Summary judgment wasalso not appropriate on secured party’s bona fide purchaser defense because whether thesecured party had constructive notice of the clients’ ownership of the funds provided to theprocessor was a question of fact.

Secured Transactions Update Page 1357. Lonely Maiden Productions, LLC v. Goldentree Asset Management, LP,135 Cal. Rptr. 3d 69 (Cal. Ct. App. 2011)Security interest granted by payroll processor attached to funds provided by processor’sclients, including a security deposit provided by one client, because the processor’s contractswith its clients disclaimed any agency relationship and failed to create a trust because eventhough the contracts required the processor to pay the clients’ employees, the contracts didnot require the processor to make the payments out of the funds provided.58. Zurita v. SVH-1 Partners, Ltd.,2011 WL 6118573 (Tex. Ct. App. 2011)Landlord acquired a security interest in equipment used by individual tenant even though theequipment was purchased by a limited liability company because the tenant wholly ownedthe LLC and therefore had the power to transfer rights in the equipment. Although securityagreement referred to property “owned or hereafter acquired” by the tenant, that language didnot limit the scope of the security interest.59. Farm Credit of Northwest Florida, ACA v. Easom Peanut Co.,718 S.E.2d 590 (Ga. Ct. App. 2011)2011 WL 4057786 (Ga. Ct. App. 2011)Although debtor’s contracts to purchase peanuts provided that the sellers retained allbeneficial interest and title until the peanuts were delivered to the debtor and the warehousereceipts therefor were delivered to the debtor, delivery of the peanuts to a third partyprocessor at the debtor’s direction gave the debtor sufficient rights in the peanuts for itslender’s security interest to attach. The seller’s reservation of title despite delivery to theprocessor was limited to an unperfected security interest.60. Jorday, Inc. v. Burggraff,2012 WL 1813436 (Minn. Ct. App. 2012)Bank did not acquire security interest in amusement part equipment from newly formedcorporation because even though the corporation later claimed depreciation allowance forthe equipment on its tax return and the principals of the corporation represented that thecorporation had acquired the equipment from the trust that had purchased it, and which theyalso controlled, there was no bill of sale or other document of conveyance from the trust tothe corporation.61. JP Morgan Chase Bank v. Lamb Livestock, LLC,2011 WL 3360100 (Ariz. Ct. App. 2011)Secured party had provided sufficient evidence in the form of the corporate debtor’s financialstatements and insurance lists, as well as a list of equipment that the debtor had provided tothe secured party at the time the loan was made, to support trial court’s conclusion that thebulk of the equipment was owned by the debtor rather than by related business entities andindividuals.

Secured Transactions Update Page 1462. In re Moberg,2011 WL 3745889 (Bankr. D.N.M. 2011)Factual issue remained as to whether corporation or its principals were the owners of theequipment in which the corporation purported to grant a security interest. Secured party nolonger had a security interest in vehicles owned by the corporation because, although itsinterest was previously noted on the certificates of title, new certificates were issued to theprinciples showing that they owned the vehicles free and clear.63. Oxford Street Properties, LLC v. Rehabilitation Associates, LLC,2012 WL 1861119 (Cal. Ct. App. 2012)Bank did not have a security interest in deposit accounts holding some of the proceeds of itsrefinancing loan to the debtor because the funds were earmarked to pay off a previouspartner, not as security for the loan, and the debtor did not have sufficient rights in thedeposit accounts to grant a security interest in them. In addition, the security agreementcovered only those “deposit accounts . . . arising to of, or relating to, the acquisition,development, ownership, management or use of” certain real property, and the depositaccounts in question were not such accounts.64. In re Buchanan Land & Cattle, Inc.,2012 WL 1658296 (Bankr. N.D. Tex. 2012)Because lender had a security interest in “all entitlements, rights to payment, and payments,. . . under any . . . program of the United States Department of Agriculture,” post-petitionchecks were proceeds of prepetition collateral and thus the security interest was not cut offby § 552. That security interest was not waived by endorsing the checks to the trustee.65. In re Grain,2011 WL 2462037 (Bankr. E.D. Tex. 2011)Bank with a security interest in farmer’s grain deposited into a silo was entitled only to a prorata portion of the proceeds of the grain sold after it was discovered that the silo operator hadinsufficient grain to cover all the claims to the grain.66. ATC Healthcare Services, Inc. v. New Century Financial, Inc.,2011 WL 2739540 (Tex. Ct. App. 2011)Factor’s perfected security interest in existing and after-acquired accounts covered accountsgenerated after the debtor became a franchisee and operated under the name of the franchisor.67. In re Ward,464 B.R. 471 (Bankr. N.D. Ga. 2011)Credit union with security interest in customer’s account could enforce that security interestby setoff even though the account contained social security benefits because setoff is not ajudicial or other legal process and thus does not violate 42 U.S.C. § 407(a). Moreover, inthis case the customer received an advance on the social security benefits from anothercreditor and thus treating the funds as exempt would effectively allow the debtor doublebenefits.

Secured Transactions Update Page 15– Other68. In re Moye,2012 WL 96478 (5th Cir. 2012)Putative buyers of chattel paper consisting of retail installment contracts for vehicles did notin fact acquire any interest in the chattel paper because the buyers were not licensed asrequired by Texas law.69. In re American Cartage, Inc.,656 F.3d 82 (1st Cir. 2011)Security agreement’s after-acquired property clause cannot encompass commercial tortclaims that did not exist when the security agreement was entered into. While the right toa tort recovery can be proceeds of other collateral, the commercial tort claim itself – andhence standing to pursue a commercial tort claims – cannot be proceeds of other collateral.70. Shellbird, Inc. v. Grossman,2012 WL 208053 (S.D. Ind. 2012)Seller that retained a security interest in show horse was entitled, after the horse’s death andthe buyer’s default, to possession of and the right to foreclose upon the horse’s frozen semen,Transport Semen Certificates, and the buyer’s trademark. No discussion of whether thesemen, certificates, or trademark were proceeds of the horse or otherwise covered by thesecurity agreement.71. In re Young,2011 WL 3799245 (Bankr. D.N.M. 2011)Debtors’ member withdrawals from LLC – a form of distribution on account of their equityinterests– were not proceeds of their LLC interests and hence Bank’s security interest inthose membership interests did not attach to the withdrawals. The court treated asdispositive the ruling in In re Hastie, 2 F.3d 1042 (10th Cir. 1993), without consideringsubsequent enactment of § 9-102(a)(64)(B).72. In re Chalmers,2011 WL 6217373 (Bankr. W.D. Mo. 2011)Bank with a security interest in all of an insurance agency’s assets was entitled to paymentsfrom buyer of agency’s book of business even though the owner of agency agreed to stay onas an employee of the agency, thereby maintaining the value of the book of business. Thepayments were by the buyer to the seller agency, not by the agency to the owner, and hencewere proceeds of the assets sold, not compensation for post-sale services.73. In re Vincent,2012 WL 694898 (Bankr. E.D. Va. 2012)Because windows and siding are ordinary building materials, creditor’s alleged PMSI in thewindows and siding did not continue after they were installed in the debtor’s home.

Secured Transactions Update Page 1674. 21st Mortgage Corp. v. Stovall,2011 WL 3307516 Tex. Ct. App. 2011)Dispute about material facts prevented summary judgment on whether manufactured homeattached to leased land was either real estate or a fixture, and therefore whether securityinterest remained attached to it.75. Lopes v. Fafama Auto Sales,2011 WL 6258818 (Mass. Ct. App. 2011)Fact that car dealer was not licensed as a sales finance company did not invalidate dealer’ssecurity interest car sold or make dealer’s repossession unlawful, it merely subjected thedealer to the specified statutory penalties.76. Hanson v. 5K Auto Sales, LLC,2011 WL 6755138 (D. Minn. 2011)Even if car dealer was required to be licensed as an automobile financier, the lack of a licensewould not invalidate the dealer’s security interest.77. In re Dunlap,458 B.R. 301 (Bankr. E.D. Va. 2011)Because federal statute prohibits assignment of military pension benefits until they are “dueand payable,” retired major’s purported assignment of future pension benefits did not in facttransfer either a security interest or complete ownership of the future payments.78. In re Brooks,452 B.R. 809 (Bankr. D. Kan. 2011)Bank had a security interest in debtor’s mobile home by getting a mortgage on real estate andthe fixtures thereon.Perfection Issues– Choice of Law79. In re Qualia Clinical Service, Inc.,441 B.R. 325 (8th Cir. BAP), aff’d, 652 F.3d 933 (8th Cir. 2011)Factor was not perfected until one month before the debtor’s bankruptcy, when factor fileda financing statement in Nevada where the debtor was incorporated; factor’s earlier filing inNebraska, where the debtor’s principal place of business was located, was ineffective. Asa result, factor’s security interest was an avoidable preference and factor could have no valid§ 547(c)(5) defense.

Secured Transactions Update Page 1780. In re Supplies & Services, Inc.,461 B.R. 699 (1st Cir. BAP 2011)Although security agreement was by express choice governed by North Carolina law, whichmakes financing statements effective for five years, perfection was governed by the law ofthe debtor’s location, Puerto Rico, which makes financing statements effective for ten years.Accordingly, secured party’s filing had not lapsed seven years after it was filed.– Method of Perfection81. In re Harbour East Development, Ltd.,2012 WL 314188 (Bankr. S.D. Fla. 2012)Lender that obtained mortgage on real property and security interest in fixtures and goodstherein and thereon, and whose recorded mortgage served as a fixture filing, was perfectedin (i) goods acquired with proceeds of other collateral, including rents, within the last 20days; (ii) goods that are post-petition proceeds of pre-petition collateral; and (iii) goods thathave become fixtures.82. In re Szerwinski,467 B.R. 893 (6th Cir. BAP 2012)Cottage built on leased land was a fixture even though it was sold through a bill of sale, nota deed, and the lease expressly provided that the cottage remained the property of the lessee.Bank’s recorded mortgage that identified the property as “fixtures” adequately described thecottage and thus satisfied the requirements for a fixture filing, thereby perfecting the bank’ssecurity interest in the cottage.83. Epstein v. Coastal Timber Co., Inc.,711 S.E.2d 912 (S.C. 2011)Although both Articles 2 and 9 treat timber to be cut as goods and the latter provides that asecurity interest in the timber can be perfected by filing a financing statement, a recordedmortgage on the land – even one that does not specifically mention the timber – alsoencumbers the timber and, if recorded first, has priority.84. In re McConnell,455 B.R. 824 (Bankr. M.D. Ga. 2011)Security interest in civil aircraft must be recorded with the FAA to be perfected; filing afinancing statement is inadequate to perfect.

Secured Transactions Update Page 18– Adequacy of Financing Statement85. In re Harvey Goldman & Co.,455 B.R. 621 (Bankr. E.D. Mich. 2011)Financing statement that identified the corporate debtor by its registered assumed name,“Worldwide Equipment Co.,” rather than the name on its articles of incorporation, “HarveyGoldman & Company,” was ineffective to perfect. Registration of the assumed name doesnot make it the proper name to use in the financing statement under or prevent a financingstatement using that name from being seriously misleading.86. In re Miller,2012 WL 32664 (Bankr. C.D. Ill. 2012)Financing statement identifying the debtor as “Bennie A. Miller” – the name the debtor hadused much of his life and on his driver’s license, social security card, tax returns, and thedeed to his residence – was ineffective to perfect because the debtor’s legal name was thename on his birth certificate, “Ben Miller,” and a search under that name did not reveal thefiling.87. In re PTM Technologies, Inc.,452 B.R. 165 (Bankr. M.D.N.C. 2011)Financing statements that omitted the “h” in the debtor’s name and which were not disclosedin a “standard” web search but were disclosed in a “non-standard” web search wereineffective to perfect because the filing office’s rules provide for an exact word match (whileignoring certain “noise” words) and the “standard” search is the one that follows these rules.88. In re Camtech Precision Manufacturing, Inc.,2012 WL 1105627 (S.D. Fla. 2011)Bankruptcy court erred in ruling that filed financing statements listing additional debtors onseparate paper exhibits but which did not indicate in the additional debtors box of thefinancing statement to look beyond the first page or use the official addendum to indicateadditional debtors were inadequate to perfect security interests granted by additional debtorsgiven that the filings were not indexed by or discoverable under the names of the additionaldebtors. Whether the financing statements had errors or the filing office failed to properlyindex the filings was a factual issue that precluded summary judgment.89. In re Baker,465 B.R. 359 (Bankr. N.D.N.Y. 2012)Financing statement that identified collateralized cows by name and ear tag number waseffective even though the tag numbers were incorrect because the names were referenced ina certificate of registration for each cow, each certificate included a sketch of the cow’sdistinctive markings, and those markings were used to identify the cows. The fragility of theear tag method of identifying cows is well known in the dairy industry and this is relevantto the searcher’s duty in reviewing a financing statement.

Secured Transactions Update Page 1990. In re D & L Equipment Inc.,457 B.R. 616 (E.D. Mich. 2011)Financing statement that described the collateral as “[e]quipment and inventory financed byThe CIT Group” was effective to perfect equipment and inventory financed by Wells FargoEquipment Finance Inc. after it acquired the secured loan and filed an amendment changingthe name of the secured party – but not the collateral description – because the filingscollectively provided notice of the possibility that Wells Fargo had assumed CIT’s role in thefinancing arrangement.91. In re Borges,2011 WL 4101096 (Bankr. D.N.M. 2011)Although the security agreements authenticated by the debtor secured all present and futuredebts owed by the debtor to both the secured party and the secured party’s affiliates, andtherefore granted a security interest to the affiliates, because only the secured party was listedon the financing statement, the affiliates’ security interests were unperfected.92. SEC v. Kaleta,2011 WL 6016827 (S.D. Tex. 2011)Financing statement filed by representative of secured party did not perfect security interestclaimed by other creditors absent evidence that the representative had an agency relationshipwith the other creditors.93. In re O & G Leasing, LLC,456 B.R. 652 (Bankr. S.D. Miss. 2011)Financing statement filed more than 30 days after separate secured loans were consolidateddid not render the security interest preferential because earlier filed financing statements foreach individual loan, each with its different collateral, remain effective to perfect the securityinterests in the collateral.– Authorization of Termination Statement94. In re Negus-Sons, Inc.,2011 WL 2470478 (Bankr. D. Neb. 2011), aff’d,460 B.R. 754 (8th Cir. BAP 2011)Secured party that, after receiving prospective lender’s letter requesting a payoff amount,seeking confirmation of the secured party’s willingness to terminate its security interest, andenclosing a proposed amendment to its UCC filings to effectuate the termination, respondedwith letter providing payoff figure and stating “[u]pon receipt of payoff all liens will bereleased,” authorized prospective lender to file termination statement. Therefore, securedparty’s prior loan to the same debtor, even if secured, was not perfected.

Secured Transactions Update Page 2095. AEG Liquidation Trust v. Toobro N.Y. LLC,932 N.Y.S.2d 759 (N.Y. Sup. Ct. 2011)Unauthorized termination statement did not affect the perfection or priority of the securedparty’s security interest. As a result, the collateral remained subject to the secured party’slien even after a foreclosure sale by a lender with a subordinate security interest.– Control96. Smith v. Powder Mountain, LLC,2011 WL 2457906 (S.D. Fla. 2011)Creditor that received court order awarding it the debtor’s securities accounts and that thenproceeded to discuss with securities intermediary on how to transfer the entitlements did nothave control under § 8-106(d)(2) sufficient to defeat the rights of intervening garnishor.Control requires not mere agreeability but a contractual right. While the intermediary hadexpressed a willingness to acquiesce in the creditor’s orders, the parties had not yet agreedon whose signatures would be needed on those orders when the garnishment order wasserved.– Collateral Covered by a Certificate of Title97. In re Moye,437 Fed. Appx. 338 (5th Cir. 2011)Creditor’s alleged purchase-money security interest in motor vehicles held as inventory wasnot perfected by possession of unmarked certificates of title. Perfection required filing afinancing statement. Subsequent decision at 2011 WL 4808124 (Bankr. S.D. Tex. 2011).98. In re Godsey,2012 WL 86778 (Bankr. E.D. Ky. 2012)Certificate of title that misidentified the secured party’s name and address was ineffectiveto perfect even though secured party submitted a proper title lien statement and the certificatereferred to the file number of that statement.99. In re Medcorp. Inc.,2012 WL 1098360 (Bankr. N.D. Ohio 2012)Bank’s security interest in ambulance company’s vehicles was unperfected because it wasneither indicated on the certificates of title nor, for vehicles for which no written certificatewas issued, noted by the clerk of a court of common pleas into the automated title processingsystem. The bank’s replacement lien granted by the cash collateral order did not insulate thebank’s interest from avoidance because it expressly provided that the replacement lienextended only “to the same extent, validity, enforceability, perfection and priority” as theprepetition security interest.

Secured Transactions Update Page 21100. In re Negus-Sons, Inc.,2012 WL 1110026 (Bankr. D. Neb. 2012)Lender’s perfected security interest in welder attached to truck remained perfected eventhough lender did not get its interest noted on the certificate of title for the truck. However,the lender’s security interest in a service body and crane attached to truck by seller was notperfected by the lender’s subsequent amendment to its financing statement referencingaccessions.101. Stanley Bank v. Parish,264 P.3d 491 (Kan. Ct. App. 2011)Pursuant to certificate-of-title statute, purchase-money security interest in truck was perfectedby mailing notice of the security interest to the Division of Motor Vehicles even though theDivision later issued a paper certificate that failed to indicate the security interest. As aresult, secured party had priority over both subsequent lien creditor and buyer at sheriff’ssale.102. In re Barbee,461 B.R. 711 (6th Cir. BAP 2011)Security interest in titled manufactured home that was affixed to realty but for which noaffidavit of conversion to real property was filed was not perfected by recorded mortgages;the home remained personal property and notation on the certificate of title was required toperfect.103. In re Epling,2011 WL 4356358 (E.D. Ky. 2011), affirming,2011 WL 1984061 (Bankr. E.D. Ky. 2011)Security interest in mobile home was not perfected because the secured party failed to filethe title lien statement in the county where the debtor resides, as required by Kentucky law,even though, as a result of the filing elsewhere, the security interest was noted on thecertificate of title for the mobile home.104. In re Pierce,2011 WL 4433620 (Bankr. E.D. Ky. 2011)Security interest in mobile home was not perfected because the secured party failed to filethe title lien statement in the county where the debtor resides, as required by Kentucky law,even though, as a result of the filing elsewhere, the security interest was noted on thecertificate of title for the mobile home.105. In re Jones,2011 WL 5869610 (Bankr. N.D. Ohio 2011)Father’s security interest in daughter’s motor vehicle was not perfected because the interestwas not noted on the vehicle’s certificate of title.

Secured Transactions Update Page 22106. Brenner Financial, Inc. v. Cinemacar Leasing,2012 WL 1448048 (N.J. App. Div. 2012)New Jersey certificate of title for limousine that identified the lessor as owner perfected thelessor’s interest, which was in reality a security interest, and subsequent Michigan certificateof title that failed to list the lessor and instead listed the security interest of a different lenderneither destroyed the lessor’s perfection nor perfected the lender’s interest because theMichigan title was void, apparently due to the debtor’s fraud in procuring the Michigan title.107. In re Stuewe,2011 WL 2173694 (Bankr. D. Kan. 2011)Lessor listed as owner of vehicle on certificate of title would be perfected even if lease wasre-characterized as secured transactions because substantial compliance with the certificateof title law is all that is necessary and a person examining the certificate of title would havenotice that the lessor claimed an interest in the vehicle.108. In re Gannon,461 B.R. 869 (Bankr. D. Kan. 2012)Pursuant to § 9-316(d), a security interest noted on Kansas a certificate of title remainedperfected even after Oklahoma issued a new certificate of title that did not indicate thesecurity interest. Although §§ 9-316(e) and 9-337 protect some purchasers in such asituation, a bankruptcy trustee with the status of a lien creditor is not a purchaser.109. In re Fryseth,2011 WL 4344162 (Bankr. W.D. Wis. 2011)While a creditor who refinances a motor vehicle loan must, under Wisconsin law, get itssecurity interest noted on the certificate of title to perfect, an assignee of a perfected securityinterest in a motor vehicle need do nothing to remain perfected.110. In re Rice,462 B.R. 651 (6th Cir. BAP 2011)Because the assignee of perfected security interest in motor vehicle covered by a certificateof title did not have to get its interest noted on the certificate to have a perfected interest, theassignee had standing to seek relief from the bankruptcy stay.– Other111. Operating Engineers Local 139 Health Benefits Fund v. Huml Contractors Inc.,2012 WL 664494 (E.D. Wis. 2012)Perfection of insider’s security interest years after it attached and when the debtor insolventwas not a fraudulent transfer done with intent to hinder, delay or defraud a creditor becausethe insider credibly testified that he was previously unaware of the need to perfect and shortlyafter he perfected he informed the main other creditor of his security interest, thus evidencingthat he was not hiding his security interest.

Secured Transactions Update Page 23112. In re Miller Brothers Lumber Co., Inc.,2012 WL 1601316 (Bankr. M.D.N.C. 2012)Secured party whose filing lapsed during the debtor’s bankruptcy case lost perfection andtherefore the debtor in possession could avoid the security interest.113. Joseph P. Galasso, Jr., Revocable Living Trust v. Surveybrain.com,LLC,2012 WL 1698411 (Mich Ct. App. 2012)Perfection of security interest lapsed because the secured party filed a continuation statementmore than six months before the expiration of the 5-year effectiveness period of the filedfinancing statement. Secured party therefore no longer had a security interest.114. In re McCoy,2011 WL 3501851 (Bankr. E.D.N.Y. 2011)Cooperative association had, pursuant to its by-laws, a security interest in debtor’s shares inthe debtor’s cooperative apartment and this security interest was automatically perfectedunder New York’s non-uniform version of § 9-308.115. In re Winchester,2011 WL 3878336 (Bankr. E.D. Ky. 2011)Because the debtor used his all-terrain vehicle for recreation and transportation, it was aconsumer good and the PMSI granted to the secured party’s assignor before ATVs becamesubject to the state’s certificate-of-title statute was automatically perfected.116. In re Hall,2011 WL 4485774 (9th Cir. BAP 2011)Attorney’s charging lien on proceeds of lawsuit was unperfected because attorney failed tocomply with Nevada statute requiring service of notice of the claimed lien on both the clientand the opposing party.– Bogus Filings117. United States v. Reed,668 F.3d 978 (8th Cir. 2012)Criminal defendant who filed fraudulent financing statement against judge and prosecutorwas properly convicted of violating 18 U.S.C. § 1521.118. United States v. Uptergrove,2012 WL 639482 (E.D. Cal. 2012)Taxpayer’s financing statements filed against federal court clerks declared to have no legaleffect and filing office ordered to expunge them. Taxpayer enjoined from filing financingstatements without validity or basis in law or fact.

Secured Transactions Update Page 24119. United States v. Marty,2011 WL 4056091 (E.D. Cal. 2011)Financing statements filed by taxpayer against IRS employees, Justice Department attorney,and federal judge declared null and void and taxpayers enjoined from filing further financingstatements.120. United States v. Merritt,2011 WL 5026074 (E.D. Cal. 2011)Financing statement filed by relative of taxpayer against IRS employee declared null andvoid and both the filer and taxpayer enjoined from filing further financing statements.PMSI Status121. In re Siemers,2011 WL 5598349 (Bankr. W.D. Wash. 2011)Down payment made when debtor purchased a new vehicle and traded in old truck withnegative equity was allocable to the negative equity, leaving a purchase-money obligationfor the entire amount financed minus the thereby reduced negative equity.122. In re Inofin, Inc.,455 B.R. 19 (Bankr. D. Mass. 2011)Chattel paper financier could not have a PMSI in the chattel paper even if the chattel paperitself represented a PMSI in the goods financed.Priority Issues– Tax Liens123. In re Reitter Corp.,2012 WL 1118418 (D.P.R. 2012)IRS has priority over previously perfected security interest in any accounts generated by thedebtor more than 45 days after the notice of federal tax lien was filed.124. Green Tree-AL LLC v. Dominion Resources, L.L.C.,2011 WL 3963010 (Ala. Civ. Ct. App. 2011)Treatment of manufactured home as realty for purposes of taxation does not convert it to realproperty; a manufactured home remains personal property unless and until its certificate oftitle is cancelled. As a result, secured party with perfected security interest in manufacturedhome that became a fixture had priority over buyer of real property at tax sale.

Secured Transactions Update Page 25– Buyers of Goods125. Wells Fargo Bank v. Associated Dealers, Inc.,2012 WL 666651 (Tex. Ct. App. 2012)Buyer of manufactured home from dealer was a buyer in ordinary course of business underTexas Manufactured Housing Standards Act even though the dealer’s distributor retainedpossession of the manufactured home and the manufacturer’s certificate of origin and thusthe buyer took free of all security interests in the manufactured home. Accordingly, thebuyer’s secured party was the only secured party and had priority over the rights of thedistributor and the distributor’s secured party.126. In re Black Diamond Mining Co.,2011 WL 6202905 (Bankr. E.D. Ky. 2011)Buyer of coal from coal merchant was a buyer in ordinary course of business that took freeof factor’s security interest in inventory because even though the termination clause of themaster sales agreement permitted the buyer to setoff the purchase price against liquidateddamages for the seller’s breach, termination had not occurred prior to the sales transactionsand thus the buyer did not acquire the goods in satisfaction of a money debt. Although thevolume of coal sold was large, the buyer was not a buyer in bulk given the repeal of Article6 and the fact that the volume was no so large as to provide the buyer with notice that theseller will not continue in the same kind of business. Moreover, the factor had approved themaster agreement before providing financing and had approved each individual sale beforeagreeing to factor the resulting account, the sales did not violate the terms of the factor’ssubsequent security agreement in inventory and, even if it did, the buyer had no knowledgethat the sales violated the factor’s rights.127. Madison Capital Co., LLC v. S & S Salvage, LLC,765 F. Supp. 2d 923 (W.D. Ky. 2011)794 F. Supp. 2d 735 (W.D. Ky. 2011) (reconsideration denied)Scrap metal buyer did not take free of security interest in metal shields created by miningcompany because the buyer either purchased from an intermediate entity, in which case thesecurity interest was not created by the seller, or the buyer purchased from the miningcompany, through the agency of the intermediate entity, in which case the seller was not inthe business of selling metal shields. The fact that the intermediate company was engagedin the business of selling scrap metal was immaterial; BIOCOB status is not determined fromthe perspective of the buyer but the perspective of the secured party.128. State Bank of Cherry v. CGB Enterprises, Inc.,964 N.E.2d 604 (Ill. Ct. App. 2012)Because strict compliance with the notice rules of the Food Security Act are required for asecured party to retain a security interest in farm products sold to a buyer, notice that failedto identify the counties in which the farm products were grown or located was ineffectiveeven though the notice stated that it covered “farm products wherever located.”

Secured Transactions Update Page 26129. Dawson v. Fifth Third Bank,2012 WL 1066025 (Ind. Ct. App. 2012)Buyers of motorcycle did not take free of security interest that was noted on missingcertificate of title even though they were presented with earlier issued duplicate certificatethat did not indicate the security interest.130. Great Plains National Bank v. Mount,2012 WL 1232286 (Colo. Ct. App. 2012)Cattle that Oklahoman debtor purchased from supplier in Missouri and resold the day afterreceipt to a buyer in Colorado were “produced in” Oklahoma within the meaning of the FoodSecurity Act and therefore the buyer that did not register in Oklahoma took subject to thesecurity interest of a bank that had an effective financing statement in Oklahoma. Thestatutory reference to where the farm products were “produced” deals the location fromwhich they were sold, not their geographic origin.131. Hammond v. Caterpillar Financial Services Corp.,66 So. 3d 700 (Miss. Ct. App. 2011)Trial court did not err in refusing to allow buyer that admittedly purchased skid-steer subjectto a perfected security interest to submit evidence at replevin hearing or in not requiring thesecured party to prove it was entitled to immediate possession.132. Cornerstone Bank and Trust v. Consolidated Grain and Barge Co.,956 N.E.2d 944 (Ill. Ct. App. 2011)Buyer of farm products that set off purchase price against prior indebtedness owed to it bythe seller took free of security interest created by the seller because the Food Security Actpreempts Article 9’s protections for buyers of farm products (including the state’snon-uniform rules regarding buyers of farm products) and, under the Act, the buyer qualifiedas a buyer in ordinary course of business even though it paid via the setoff.– Competing Security Interests133. Merrill Lynch Business Financial Services, Inc. v. Kupperman,441 Fed. Appx. 938 (3d Cir. 2011)Secured creditor of predecessor business had priority over secured creditor of successor withrespect not merely to collateral transferred but also as to collateral acquired after thesuccessor began operations because the security interest granted by the predecessor expresslycovered after-acquired collateral and the successor was a mere continuation of thepredecessor.

Secured Transactions Update Page 27134. First Financial Bank v. GE Commercial Distribution Finance Corp.,2012 WL 1340312 (S.D. Ohio 2012)Secured party with a PMSI in inventory watercraft had priority over a lender with apreviously perfected security interest because the lender received the secured party’snotification of planned PMSI inventory financing, that notification, though unsigned, wasauthenticated because it was on the secured party’s letterhead, and the notificationsufficiently described the collateral as including “new and used boats.”135. Great Plains National Bank v. Mount,2012 WL 1232286 (Colo. Ct. App. 2012)Bank that had a perfected security interest in Oklahoman debtor’s cattle had priority under§ 9-322 over PMSI granted by the debtor’s Colorado buyer because the bank’s securityinterest attached prior to the debtor’s sale and the bank re-filed in Colorado shortly after thesale. The buyer’s secured party did not have priority under § 9-324(d) because the buyer didnot take free of the bank’s security interest under § 9-320 and because the secured partyneither perfected before the buyer acquired possession nor gave notification to the bank.136. Union Bank Co. v. Heban,2012 WL 32102 (Ohio Ct. App. 2012)Trial court erred in ruling that a financing statement must relate to a specific note orindebtedness of the debtor; bank’s filed financing statement was effective to perfectsubsequent secured transactions and to give bank priority over intervening secured party.137. Commercial Capital Bank v. House,2012 WL 220214 (W.D. La. 2012)Secured party who perfected security interest in equipment in 1997 and twice filed timelycontinuation statements – as well as new financing statements for additional secured loans –had priority over subsequent creditor with security interest perfected in 2003 because, eventhough the original secured party’s first loan was paid off, that security agreement coveredfuture advances.138. Domus, Inc. v. Davis-Giovinazzo Construction Co.,2011 WL 3666485 (E.D. Pa. 2011)Secured party which filed its financing statement as to the debtor’s accounts beforesubsequent lender filed or perfected had priority. Although a party who acts in bad faith isnot entitled to the protections afforded by the UCC, the secured party did not have uncleanhands or overstep its authority when, after default, it filed arbitration claim on the debtor’sbehalf against the account debtor because the security agreement expressly gave the securedparty the right to collect accounts and “to do all acts and things necessary or incidentalthereto.”

Secured Transactions Update Page 28139. Dayka & Hackett, LLC v. Del Monte Fresh Produce N.A., Inc.,269 P.3d 709 (Ariz. Ct. App. 2012)Prior to amendments in 2009, Mexican law did not generally require a filing as a conditionto a security interest obtaining priority over the rights of a lien creditor – something to beassessed in general, not on a collateral-specific basis – and thus secured party that filed in theDistrict of Columbia against Mexican debtors’ grape crop had priority over secured party thatrecorded in Mexico. Junior secured party, which had sold the crop, was liable for conversionbecause a senior secured party is entitled to possession even if it does not demandpossession, although such a demand was in fact made. The fact that the junior secured partyalso acted as the debtor’s distributor, and therefore had recoupment rights with the respectto the sale proceeds was irrelevant.140. Banner Bank v. First Community Bank,2012 WL 642310 (D. Mont. 2012)Bank with a perfected security interest in all of the debtor’s assets was entitled to theproceeds of some tanks that the debtor had sold and which proceeds the debtor had paid toanother lender that had provided bridge financing to help reduce the loan to the bank. TheBank had priority in the tanks sold, even if the other lender had a security interest in themat all, and the other lender did not take free under § 9-332 because it colluded with the debtorin violating the bank’s rights.141. In re Wilkinson,2012 WL 1192780 (Bankr. N.D.N.Y. 2012)Creditor’s security interest that was perfected by a filing that lapsed during the debtor’sbankruptcy proceeding retained priority over the perfected security interest of anothercreditor because bankruptcy law fixes priority as of the petition date.142. In re Siskey Hauling Co., Inc.,456 B.R. 597 (Bankr. N.D. Ga. 2011)Lender that acquired third security interest in debtor’s accounts and whose loan was used topay off the creditor with the first security interest was not entitled to be subrogated to thatcreditor’s rights because the transaction was structured as a payoff, not an assignment, andbecause the lender was guilty of inexcusable neglect since it knew of the second securityinterest but failed to take the steps necessary to give it a superior position.143. Prestige Capital Corp. v. Pipeliners of Puerto Rico, Inc.,2011 WL 4899968 (D.P.R. 2011)Secured party with a security interest in the debtor’s existing and after-acquired accounts andwho filed first had priority over government-run bank with a later perfected security interesteven as to account owed by a Commonwealth agency. The secured party’s failure to complywith the Puerto Rico Assignment of Claims Act was not relevant to the relative priority ofthe security interests and the secured party’s UCC-3 amending the debtor’s name wasproperly filed even though for some unexplained reason it was no disclosed in a search.

Secured Transactions Update Page 29144. In re Deckers Construction, Inc.,461 B.R. 143 (Bankr. D.P.R. 2011)Even if a PMSI can be created in intangible assets, such as an account, under old Article 9,bank’s security interest in contractor’s account did not have PMSI status because the bank’sloan was not used to acquire the account given that the construction contract – and hence theaccount – preceded the bank’s loan.145. Farm Credit of Northwest Florida, ACA v. Easom Peanut Co.,2011 WL 4057786 (Ga. Ct. App. 2011)Lender’s perfected security interest in debtor’s peanuts and the proceeds thereof may nothave priority over unperfected security interests of sellers if lender acted in bad faith inassuring the sellers of the debtor’s financial stability and that they would be paid. However,lender’s security interest had priority over the possessory lien of a bailee/processor that hadnot issued warehouse receipt because the applicable Georgia statute expressly provides thata bailee’s lien is inferior to a recorded lien, which the lender’s security interest was.Although the bailee/processor may have a claim in quantum meruit against the lender forprocessing services provided at the lender’s direction, that claim is not a prior lien on theproceeds of the peanuts.146. Comerica Bank v. Jones,2011 WL 4407422 (E.D. Mich. 2011)Secured party with security interest in all of the debtor’s assets, including investmentproperty, had priority in proceeds of the sale of the debtor’s stock in a Singapore subsidiaryover a loan participant that had agreed to subordinate its interest even though the assets ofthe subsidiary were not collateral and even though the secured party may have made arepresentation to that effect.147. Action Capital Corp. v. Eclipse Bank, Inc.,2011 WL 4502080 (Ky. Ct. App. 2011)Secured party with a senior security interest in accounts had priority in monies received froman auction of inventory, authorized by the defaulting buyer, over the lender with a perfectedsecurity in inventory. Even though the defaulting buyer never took possession, title vestedin the buyer when the goods were identified to the contract and even if title re-vested in thedebtor upon the buyer’s default, it would have done so for the benefit of the account lender.148. SEC v. Kaleta,2011 WL 6016827 (S.D. Tex. 2011)Although agreement by which seller agreed to subordinate its payment rights and securityinterest to the buyer’s lender extended the subordination to others who provide “replacementfinancing,” investors bilked in the debtor’s Ponzi scheme were unable to show that theyqualified as replacement lenders under the terms of the agreement because most could nottrace the funds they invested to the debtor and those that could did not get a securityagreement, as the subordination agreement required.

Secured Transactions Update Page 30149. In re Damon Pursell Construction Co.,2011 WL 6130528 (Bankr. W.D. Mo. 2011)Although bank’s perfected security interest in two excavators was initially junior to theinterests of two creditors, each of which had a perfected PMSI in one of the excavators, whendebtor sold one excavator and used the funds to pay the wrong PMSI creditor, the bank’sinterest became senior in the remaining excavator because the payment terminated the paidcreditor’s security interest and the unpaid creditor had no security interest at all in the unsoldexcavator. Presumably, the security interest of the unpaid creditor remained attached to theexcavator sold.150. Minnwest Bank v. Arends,802 N.W.2d 412 (Minn. Ct. App. 2011)Feed supplier with a perfected livestock production input lien did not have priority bank’searlier security interest because feed supplier did not send notification to the bank in anenvelope marked “IMPORTANT–LEGAL NOTICE,” as required by the agricultural lienstatute.– Other151. Mississippi County v. First Tennessee Bank,2011 WL 2160281 (E.D. Ark. 2011)Creditor with security interest in hospitals’ accounts generated prior to termination ofhospitals’ leases took those accounts subject to Medicare’s right to reimbursement foroverpayments.152. Variety Wholesalers, Inc. v. Prime Apparel, LLC,720 S.E.2d 30 (N.C. Ct. App. 2011)Creditor with perfected security interest in clothier’s accounts was not entitled to funds duefrom clothier’s customer because the goods sold to the customer violated the trademarkrights of another entity, and thus the debtor did not have any right in the account to pass tothe secured creditor.153. RDLF Financial Services, LLC v. Esquire Capital Corp.,2012 WL 695488 (N.Y. Sup. Ct. 2012)Junior secured party that received payment from debtor out of cash proceeds of the collateralthat had been deposited into a commingled deposit account took free under § 9-332(a) of anyclaim of the senior secured party because there was no allegation that the junior secured partyhad colluded with the debtor to violate the rights of the senior secured party. Court alsosuggested that the commingling rendered the proceeds unidentifiable.

Secured Transactions Update Page 31154. Rabbia v. Rocha,34 A.3d 1220 (N.H. 2011)Plaintiff, for whom defendant car dealer, pursuant to court order, wrote checks to its attorneyto place funds in escrow, took free under § 9-332 of the security interest of the dealer’s floorplan financier.155. First Dakota National Bank v. First National Bank of Plainview,2011 WL 4382147 (D.S.D. 2011)Pursuant to § 9-341, bank’s unperfected security interest in proceeds of debtor’s livestockwas subordinate to the setoff rights of the depositary bank in which the proceeds weredeposited. The prior common law regarding special deposits is no longer applicable and,even if it were, the deposits were not special deposits, even though resulting from sales oflivestock purportedly owned by the bank’s customers, because they were all made in theordinary course of the debtor’s business. While the depositary bank had acknowledged thebank’s interest in the debtor’s livestock, it had not agreed to subordinate its setoff rights.156. BNP Paribas v. Olsen's Mill, Inc.,799 N.W.2d 792 (Wis. 2011)Trial court could not order receiver to sell collateral free and clear of secured party’s lienwithout the secured party’s consent and secured party did not consent merely by initiatingand participating in the receivership. Even if the sale proceeds paid the secured party the fullamount of its secured claim, the sale order was invalid because it provided for the buyer tohonor certain trade obligations of the debtor, thereby improperly giving them priority overthe undersecured portion of the secured party’s claim.157. M & I Marshall & Isley Bank v. Kinder Morgan Operating L.P.,2012 WL 382926 (Mo. Ct. App. 2012)Perfected security interest in warehoused coal was junior to earlier warehouse lien, eventhough some or all of the originally warehoused coal had been replaced with new coal afterthe security interest was perfected. However, perfected security interest had priority oversubsequent warehouse lien; the fact that the secured party may have benefitted by thewarehouseman’s storage of the goods did not give the warehouseman priority and storage ofthe goods was not an entrustment.158. In re Naknek Elec. Association, Inc.,2012 WL 986651 (Bankr. D. Alaska 2012)Statutory mining lien on rig for work performed in connection with exploratory geothermalwell has priority over previously perfected security interest because the secured party did not,prior to the work being performed, record its interest in the recording district where theproperty is located.

Secured Transactions Update Page 32159. In re Thermopylae, LLC,2011 WL 3439133 (Bank. D. Md. 2011)Secured party with perfected security interest debtor’s equipment had priority over landlordin the alterations, decorations, additions, and improvements that the debtor made to leasedpremises because even though such property would normally have become fixtures prior toattachment of the security interest, the lease expressly provided that the debtor would retainthe right to such property.160. Kazar v. San Gabriel Plaza, Inc.,2011 WL 6062019 (Cal. Ct. App. 2011)Original tenant that retained a security interest in equipment sold when assigning the leaseto a buyer of tenant’s franchise did not have priority over the interest of the landlord eventhough the lease expressly provided that any lien of the landlord would be subordinatebecause the assignee abandoned the leased premises, causing the lease to terminate and titleto all equipment to vest in the landlord.161. BancorpSouth Bank v. Hazelwood Logistics Center, LLC,2011 WL 5900998 (E.D. Mo. 2011)Lender with a security interest in borrower’s right to tax refund, perfected by filed financingstatement covering “all Tax and Insurance Deposits,” had priority over equitable lien ofcompany that performed tax surveys tax surveys and whose contract entitled it to 35% of thetax savings realized therefrom because the filing predated the contract.162. Mill Creek Lumber & Supply Co. v. First United Bank and Trust Co.,2012 WL 1862767 (Okla. Ct. Civ. App. 2012)Because Article 9 does not apply to a lien on ordinary building materials incorporated intoan improvement on land, it did not govern relative priority of materialman’s statutory lienand mortgage lien.163. RMB Fasteners, Ltd. v. Heads & Threads Intern., LLC,2012 WL 401490 (N.D. Ill. 2012)Seller of goods that sent § 2-702 reclamation demand within ten days after the buyer receivedthem was entitled to the goods over the objection of the buyer’s secured creditor because thesecured party waived its rights by failing to object at the hearing when all parties agreed thatthe goods were properly subject to reclamation.164. Bode v. State,2012 WL 759203 (Alaska Ct. App. 2012)Secured party’s security interest in airplane could be forfeited to the state as a result of thedebtor’s criminal activity because the secured party was aware of the debtor’s history ofusing the airplane to violate the law in ways that might lead to forfeiture and thus did notqualify for the innocent owner/creditor defense, even if the secured party did not have reasonto believe that the debtor, her son, would re-offend.

Secured Transactions Update Page 33165. United States v. $463,497.72,2012 WL 1079956 (E.D. Mich. 2012)Pharmaceutical supplier that had a security interest in the bank accounts of its customerpharmacy that had diverted controlled substances for unlawful purposes was entitled to theinnocent owner defense to forfeiture because, even if the supplier was negligent inmonitoring its customer, the supplier’s employees had no knowledge of the illegal activity,had reported suspicious orders of controlled substances, and had credible explanations whythe spike in the orders for some controlled substances did not provoke additional suspiciousorder reports or suspension of shipments, and thus the supplier was not willfully blind to theillegal diversions.166. In re Yarnell's Ice Cream Co., Inc.,2012 WL 1372097 (Bankr. E.D. Ark. 2012)Seller of frozen strawberries did not comply with PACA because its invoices, althoughstating that the seller retains a trust claim “over the commodities sold” until full payment isreceived, did not state that the seller retains a trust claim over “all inventories of food orother products derived from these commodities,” as required by § 4. As a result, the sellerwas not protected by PACA against the buyer’s secured party with respect to the proceedsof the strawberries.167. Oyens Feed & Supply, Inc. v. Primebank,808 N.W.2d 186 (Iowa 2011)Pursuant to Iowa agricultural lien statute, an agricultural supplier must comply with noticeprocedure to share equal priority with a prior perfected secured party generally, but need notcomply with the notice procedure to have priority over a prior perfected secured party to theextent of the difference between the acquisition price of the livestock and either the fairmarket value of the livestock at the time the lien attaches or the sale price of the livestock,whichever is greater.168. In re Meadowbrook Farms Co-op.,2011 WL 2293389 (S.D. Ill. 2011)Livestock seller that was entitled under the Packers and Stockyard Act of 1921 to treat thebuyer’s livestock sale proceeds as being held in trust for the seller until paid in full was alsoentitled to collect from the trust attorney’s fees incurred in litigating its priority because thesales agreement so provided.169. Tecnitoys Juguetes, S.A. v. Distributoys.com, Inc.,2011 WL 2293855 (N.D. Ill. 2011)Distributor of toys was entitled to temporary restraining order preventing customer fromselling toys because the arrangement appears to have been a bailment due to the fact that:(i) the distributor had retained control over the toys by directing the customer to fulfill ordersthat the distributor had arranged; and (ii) bore the cost of handling and storing the toy carsfor years after the toy cars were delivered to the customer.

Secured Transactions Update Page 34170. National City Bank v. Texas Capital Bank,353 S.W.3d 581 (Tex. Ct. App. 2011)Garnishee bank that maintained investment portfolio account for client and had a securityinterest in that account to secure a line of credit had priority over the rights of the garnishor.The garnishee bank was liable to the garnishor for funds that it returned to the debtor afterservice of the writ and liquidation of the account, but was not liable for amounts it set offagainst the client’s obligation on the line of credit.Enforcement Issues– Default171. Buzzell v. Citizens Auto. Finance, Inc.,802 F. Supp. 2d 1014 (D. Minn. 2011)Secured party that regularly accepted late payments was required to provide the debtor withnotification of its intent to repossess vehicle before doing so, and its failure to provide suchnotice rendered the repossession wrongful.– Waiver, Estoppel & Other Defenses172. Zorin Properties, LLC v. Denney,2012 WL 751978 (Ky. Ct. App. 2012)Secured party that sent to the debtor notification of his intention to repossess the collateralon a specified date did not thereby waive the right to repossess earlier. Neither the securityagreement nor the law required notification of repossession and the security agreementexpressly provided that no notice to the debtor would entitle the debtor to further notice inthe future. The notification was a courtesy and did not create a course of dealing thatoverrode the express terms of the security agreement.173. JPMorgan Chase Bank v. Jeffco Cinnaminson Corp.,2012 WL 996617 (N.J. Super. Ct. App. Div. 2012)Summary judgment in favor of secured party reversed because debtor and co-borrower mayhave an impairment of collateral defense based on secured party’s release of its lien on twovehicles upon receipt of subsequently dishonored payoff checks from consignee.

Secured Transactions Update Page 35– Replevin & Repossession174. Harley-Davidson Credit Corp. v. Monterey Motorcycles, Inc.,2012 WL 1309151 (N.D. Cal. 2012)Lender with purchase-money security interest in motorcycle dealer’s inventory was entitled,ex parte, to temporary restraining order enjoining the dealer from selling any collateral dueto evidence that, after selling some inventory out of trust and agreeing not to do so further,the debtor continued to surreptitiously sell inventory out of trust and use the funds to payother creditors.175. All Points Capital Corp. v. B.C.A. Leasing Ltd.,2012 WL 246617 (N.Y. Sup. Ct. 2012)Lender with security interest in auto dealer’s inventory, as well as a mortgage on realproperty, was not entitled to a preliminary injunction awarding it possession of the inventorybecause even though the lender had established a likelihood of success on the merits basedon the auto dealer’s admitted default on the loan, the lender had not shown that it will sufferirreparable injury without injunctive relief. Moreover, and such an injunction would interferewith the auto dealer’s ability to sell inventory, which would enhance its ability to repay thedebt.176. De Lage Landen Financial Services, Inc. v. Tri State Crane Rental Corp.,2012 WL 484244 (D. Me. 2012)Secured party with perfected security interest in crane was not entitled to ex parte prejudgmentwrit of attachment even though the debtor had sold and delivered the crane to abuyer in another state. The secured party had not shown that there was an immediate dangerthat the defendants will damage or destroy any property to be attached, if notified in advanceof the request for an attachment, particularly given that the crane was already gone, there wasno evidence the proceeds were still on hand, and no evidence that the corporate guarantorswere linked to the debtor’s improper conduct.177. Whitney National Bank v. Flying Tuna, LLC,2011 WL 2669450 (S.D. Ala. 2011)Secured party that had made a showing of default to which the debtor had not responded wasentitled to a preliminary injunction prohibiting the debtor from disposing of any collateralbut had not shown the likelihood of irreparable injury necessary for a preliminary injunctionrequiring the debtor to provide an inventory of collateral, to provide an accounting ofaccounts receivable, or to turn over artwork subject to the security interest.178. Firestone Financial Corp. v. Maxx Fun, LLC,2011 WL 4459388 (M.D. Pa. 2011)Secured party had no shown that it was entitled to ex parte, pre-judgment seizure of thecollateral because the claim that the collateral would decrease in value was unsupported, theassertion that the collateral may be moved outside the jurisdiction was vague and much ofit was already outside the jurisdiction, the secured party had not established the value of thecollateral, and some of the collateral was in the hands of a non-party.

Secured Transactions Update Page 36179. General Elec. Capital Corp. v. Oncology Associates of Ocean County LLC,2011 WL 6945739 (D.N.J. 2012)Lessor/secured party of medical equipment was entitled to writ of replevin because thelessee/debtor failed to prove that: (i) the equipment had become a fixture, and thus itremained personal property; (ii) the cost of removal would exceed the likely sale proceedsand would therefore render removal commercially unreasonable; (iii) the clause in theagreement providing for immediate removal upon default was unconscionable because itwould endanger public health by disrupting numerous, innocent third parties’ ongoing cancertreatment; or (iv) would result in forfeiture.180. Oyster Technologies, Ltd. v. Environmental Developers Group, LLC,2011 WL 6213747 (D. Mass. 2011)Creditor with nonrecourse loan secured only by A 50% interest in a limited liability companywas entitled to preliminary injunction against the debtor withdrawing funds from or pledgingthe assets of the limited liability company.181. Gati v. Americredit Financial,2012 WL 345916 (Ohio Ct. App. 2012)Assignee of security interest in automobile that was perfected by notation of original lender’sinterest on the certificate of title was entitled to repossess the vehicle even though assignee’sinterest was not noted on the certificate. Unclear if the court concluded that assignee’sinterest was perfected or that perfection was not necessary to enforcement.182. Home Savings & Loan Co. of Youngstown, Ohio v. Super Boats & Yachts, LLC2011 WL 2447641 (S.D. Fla. 2011)Creditor with a purchase-money security interest in a vessel perfected by notation on thevessel’s certificate of title had neither a maritime lien nor a preferred mortgage, and thereforethere was no federal court jurisdiction over the creditor’s effort to replevy the vessel froma buyer.183. Wecker v. Crossland Group, Inc.,939 N.Y.S.2d 481 (N.Y. App. Div. 2012)Repossession company which contracted with independent contractor to effectuaterepossession commissioned by secured party was not responsible for torts committed byindependent contractor during repossession; although the secured party’s duty not to breachthe peace is nondelegable, the repossession company was not the secured party.184. Reinhart v. PNC Bank,2012 WL 1104685 (E.D. Pa. 2012)Police officers that allegedly assisted in repossession by ordering the debtor’s son away fromthe collateralized boat and opening the enclosure where the boat was stored could be liableunder § 1983. However, borough that employed police officers was not liable for failure toproperly train its employees based on this one incident.

Secured Transactions Update Page 37185. Brown v. City of Philadelphia,2012 WL 1758172 (E.D. Pa. 2012)City was not liable under § 1983 for the assistance its police officers allegedly providedduring repossession of debtor’s car by demanding that the debtor exit the vehicle because bythe time the officers arrived on the scene, the car was attached to the tow truck and had beendriven down the street, and thus the repossession had already occurred, even though thedebtor entered the car while it was still in his driveway.186. Johnson v. Universal Acceptance Corp. (MN),2011 WL 3625077 (D. Minn. 2011)Debtors had no cause of action against police for violation of their civil rights in connectionwith repossession of their car because the officers did not assist in the repossession, insteadthey merely kept the peace by separating the parties and threatening to arrest one of thedebtors when he made threats after the vehicles was already hooked up to the tow truck.187. Marcum v. Eastman Credit Union,2012 WL 1820865 (E.D. Tenn. 2012)Because the towing company had already attached the vehicle to the tow truck and towed thevehicle from its parking spot into the flow of traffic before the debtor exited the vehicle,made her presence known to the agent, and objected to the repossession, the repossession hadbeen completed before the objection was made. Because there were no other facts bearingon the issue, the repossession was not a breach of the peace and the debtor’s claim under theFair Debt Collection Practices Act for taking property to which the creditor had no presentright to possession failed.188. Emigrant Mortgage Co. v. Greenberg,2012 WL 751562 (N.Y. Dist. Ct. 2012)Secured party that purchased at a public sale the debtor’s shares in a condominium wasentitled to use summary eviction proceedings to remove the debtor. Even though the shareswere personal property and the summary proceeding is for real estate, ownership of theshares carries with it ownership of a proprietary lease, and therefore an interest in a chattelreal.189. Reed v. Les Schwab Tire Centers, Inc.,2011 WL 692904 (Wash. Ct. App. 2011)Tire seller that had a security interest in customer’s tires did not commit conversion byremoving tires and wheels from the customer’s car, bringing them to the seller’s place ofbusiness to there separate the tires from the wheels, and returning the wheels the followingday. The seller actions were justified and the customer suffered no damages for thetemporary loss of the wheels.

Secured Transactions Update Page 38– Notification of Disposition190. Epps v. JP Morgan Chase Bank,675 F.3d 315 (4th Cir. 2012)The National Bank Act and the OCC regulations promulgated thereunder preempt, withrespect to national banks, state laws requiring disclosures relating to an extension of credit,not notices relating to debt collection, and thus do not preempt Maryland law requiringsecured parties to provide certain detailed information to the debtor after repossession oftangible personal property.191. Aguayo v. U.S. Bank,653 F.3d 912 (9th Cir. 2011)The National Bank Act and the OCC regulations promulgated thereunder do not preempt,with respect to national banks, California law requiring secured parties to provide certaindetailed information to the debtor after repossession but before sale of an automobile.192. Barclays Bank PLC v. Poynter,2011 WL 3794890 (D. Mass. 2011)Because the Ship Mortgage Act does not preempt state law on enforcement of securityinterests in vessels, the secured party was permitted to conduct a non-judicial, private saleof the vessel. As a result, the notification provided by the secured party, which did not statethe time and place of the sale, merely the date after which the sale would be conducted, wassufficient.193. Zwicker v. Emigrant Mortgage Co.,936 N.Y.S.2d 158 (N.Y. Super. Ct. 2012)Notification of disposition sent by certified mail, return receipt requested, was reasonabledespite use of an incorrect zip code because the address itself was otherwise correct andbecause the debtor acknowledged receipt of at least one notification and her counselacknowledged receipt of notification.194. In re MarMc Transp., Inc.,2012 WL 272791 (Bankr. D. Wyo. 2012)Secured party’s notification of disposition provided on January 21 and which indicated thecollateralized airplane would be sold no later than January 31 gave only seven [sic] daysnotice of the pending sale and was therefore inadequate, particularly since the buyer hadpreviously paid for the aircraft. It did not matter that secured party did not actually transfertitle by providing a bill of sale until May 23.

Secured Transactions Update Page 39195. In re Boone,2012 WL 1118988 (Bankr. E.D. N.C. 2012)Secured party in consumer transaction that on August 30 sent notification of a private saleto be held no earlier than September 9 gave reasonable notification even though the intervalincluded a national holiday and the debtors claimed that they lacked the time to withdrawmoney from their retirement account to redeem the collateral.196. In re Catipon,2011 WL 6934448 (9th Cir. BAP 2011)Secured party’s notification of disposition, which did not state that the debtor had 15 daysfrom the date of the notification to redeem the vehicle or that the secured party intended todispose of the vehicle upon the expiration of that 15-day period, failed to comply withCalifornia statute governing conditional sale contracts for motor vehicles and, therefore,secured party was not entitled to a deficiency.197. Mountaineer Investments LLC v. Heath,2011 WL 6038450 (Wash. Ct. App. 2011)Notification that motor home would be disposed of at a public sale on a specified date wasnot insufficient merely because the sale closed a month afterwards, given that the salecommenced on the date specified. Although no one appeared at the location to place anin-person bid, and the secured party then used telephone inquiries and written submissionsto reach an agreement, the process remained a public sale.198. Scott v. Nuvell Financial Services LLC,789 F. Supp. 2d 637 (D. Md. 2011)Collateralized vehicles were sold at a public sale, not a private sale, under Maryland’s CreditGrantor Closed End Credit law because the public was invited through weeklyadvertisements in the Baltimore Sun and the forum was open to the public, even thoughnon-dealers had to provide a refundable $1,000 deposit to attend. As a result, notificationof the sale was proper.199. Cappo Management V, Inc. v. Britt,711 S.E.2d 209 (Va. 2011)Automobile seller that repossessed the car subject to a conditional sale contract when thefinancing fell through was required to give the buyer notification of a resale because, eventhough the Supplement to Purchase Contract declared that the car remained property of thedealer pending approval of the lender, other contract documents treated the vehicle asbelonging to the buyer and the ambiguity had to be construed against the dealer.

Secured Transactions Update Page 40200. Cosgrove v. Citizens Automobile Finance, Inc.,2011 WL 3740809 (E.D. Pa. 2011)Class action settlement against auto financier for allegedly not providing a reasonabledisposition notification – due to the fact that the notifications failed to set forth the debtor’sreinstatement rights and in many cases overstated the debtor’s obligations – would beapproved, in part because the merits of the claim were compelling.201. Kight v. Ford Motor Credit Company, LLC,721 S.E.2d 204 (Ga. Ct. App. 2011)Secured party that disposed of debtor’s vehicle was not entitled to a summary judgment onits claim for a deficiency because even though it had sent by certified mail to the debtor’saddress listed in the security agreement the notification, required by non-uniform state law,of its intent to pursue a deficiency, the debtor had presented evidence that she had earliernotified the secured party of a change in address.– Conducting a Commercially Reasonable Disposition202. In re Inofin, Inc.,455 B.R. 19 (Bankr. D. Mass. 2011)Even if lender had a security interest in chattel paper sold at foreclosure sale, the sale was notcommercially reasonable because: (i) the first and third notifications contained the wrongdate and the second was sent only two days before the date of sale; (ii) the secured party’sattorney was unaware whether the debtor was in default and did not cause notification ofdefault to be sent to the debtor; (iii) and no effort was made to solicit bids from individualsor entities in the industry by placing ads in trade publications; there were merely two ads inthe Boston Herald.203. Tex Star Motors, Inc. v. Regal Finance Co.,2012 WL 58945 (Tex. Ct. App. 2012)Evidence was sufficient to support jury’s determination that chattel paper financier acted ina commercially reasonable manner in selling 906 repossessed automobiles at wholesale, byhaving dealers make sealed bids. Pursuant to § 9-601(g), the financier, as a buyer of chattelpaper, had no duty to provide notification to its debtor, the car dealer, before selling the carsof the account debtors.204. In re MarMc Transp., Inc.,2012 WL 272791 (Bankr. D. Wyo. 2012)Secured party did not prove that its private sale of an airplane was commercially reasonableeven though the secured party claimed the sale price exceeded the appraised value of thecollateral because the secured party did not provide any evidence that the sale was conductedin the usual manner on any recognized market, that the price was current in any recognizedmarket at the time of disposition, or that the sale was in conformity with the reasonablecommercial practices among dealers of aircraft.

Secured Transactions Update Page 41205. GMAC v. Jones,933 N.Y.S.2d 354 (N.Y. App. Div. 2011)Debtors failed to raise a triable issue of fact as to whether the secured party sold thecollateralized vehicle in a commercially reasonable manner given that the sales price was$1,700 greater than its estimated wholesale value.206. People’s United Equipment Finance Corp. v. Hartmann,447 Fed. Appx. 522 (5th Cir. 2011)Public sales of collateralized equipment at which the secured party was the only bidder werecommercially reasonable because they were conducted in accordance with industry standardsand the sale prices represented, according to various pricing resources, the equipment’s fairmarket value as of the dates of sale.207. In re Adobe Trucking, Inc.,2011 WL 6258233 (Bankr. W.D. Tex. 2011)Public sale of collateralized drilling equipment at which the secured party credit bid $41million was commercially reasonable given that the price was higher than the amount of oneappraisal, the other appraisal had to be discounted because it was prepared well before thesale and the market for such equipment was declining, and the secured party resold theequipment four months later for only $9 million. Advertising for the sale for one day innewspapers of general circulation was adequate because the security agreement provided thatit would not be commercially unreasonable “to advertise dispositions of Collateral throughpublications or media of general circulation, whether or not the Collateral is of a specializednature.” The debtors could not complain about the secured party’s failure to clean or paintthe equipment prior to the sale or make it available for inspection given their refusal to turnthe collateral over, identify its location, otherwise cooperate and because the securityagreement provided that the secure party need not incur expenses to prepare the collateral forsale and need not have possession at the time of sale.208. Mountaineer Investments LLC v. Heath,2011 WL 6038450 (Wash. Ct. App. 2011)Amalgamated public/private sale of motor home was commercially reasonable because thesecured party advertised the sale sufficiently to draw six bids, extended the sales process,which resulted in a doubling of the number of bids, and negotiated a $500 increase in thesales price from the high bidder.209. First Chatham Bank v. Landers,2011 WL 4501968 (D.S.C. 2011)2011 WL 7064553 (D.S.C. 2011)Secured party may bring an action against the debtor on the secured obligation despiteretaining possession of collateralized stock certificates because the certificates were still inthe debtor’s name and had not been “repossessed” (i.e., foreclosed upon).

Secured Transactions Update Page 42– Collecting on Collateral210. Bank of America v. Illumination Station, Inc.,2012 WL 1030321 (N.D. Ill. 2012)Although creditor with a security interest in accounts that, after default, bought the accountsat a public auction, may have acquired the accounts pursuant to § 9-617 free of any right ofthe account debtor normally preserved by § 9-404, factual questions about whether thecreditor really had a security interest, whether the sale was conducted in a commerciallyreasonable manner, and whether proper notification was provided, prevented a determinationof whether the creditor qualified as a good faith transferee. The account debtor’s claimsunder § 9-404 are limited to those that reduce the obligation (no affirmative recovery isavailable against an assignee) and to those that either arose out of the same contract as theacco8unt or prior to notification of the assignment.211. Riviera Finance of Texas, Inc. v. Capgemini U.S., LLC,2012 WL 1132209 (S.D.N.Y. 2012)Account debtor that, after receiving notification of the assignment of the account, receivedreports that the debtor was not paying subcontractors and entered into a second agreementwith the debtor regarding payment to subcontractors could not use the debtor’s breach of thatagreement to offset its liability to the factor that received the assignment of the account. Thedebtor’s breach of the original agreement did not cause any damage to the account debtor;instead all of the account debtor’s expenses incurred in paying contractors directly arose fromthe debtor’s failure to abide by the second agreement and its statements to contractors.212. Mobile-One Auto Sound, Inc. v. Whitney National Bank,78 So.3d 807 (La. Ct. App. 2011)Bank was not required to provide borrower with notification of default before debitingborrower’s checking account of funds that the borrower had earmarked for floor planfinanciers.213. Agri-Best Holdings, LLC v. Atlanta Cattle Exchange, Inc.812 F. Supp. 2d 898 (N.D. Ill. 2011)Secured party that obtained relief from the stay and then notified account debtor to pay itdirectly was the real party in interest in action against the account debtor that the debtorcommenced shortly after filing for bankruptcy and the secured party could be substituted forthe debtor.214. Constructors & Associates, Inc. v. First National Bank of Cameron,2011 WL 2770234 (Tex. Ct. App. 2011)General contractor/account debtor was not entitled to summary judgment on claim broughtby bank with a security interest in subcontractor’s accounts because the general contractorfailed to provide evidence about which contracts the subcontractor breached – thereby givingrise to a contractual setoff right – or how much was owed to the suppliers.

Secured Transactions Update Page 43215. In re Black Diamond Mining Co.,2011 WL 6202905 (Bankr. E.D. Ky. 2011)Account debtors who purchased coal from debtor pursuant to master sales agreement thatpermitted the account debtor to recoup the purchase price against liquidated damages for thedebtor’s breach owed no obligation to the debtor’s factor because the breach damagesexceeded the amounts due. Factor had no standing to argue that it was the account debtorswho in fact breached because it was not a party to the agreement and, in any event, the debtorhad never issued an event of default notice to the account debtor. Amounts the accountdebtor paid directly to the debtor to amend the master sales agreement did not violate thefactor’s rights because those payments were not “accounts” under Article 9 and did not arisefrom the sale of inventory, which were the only rights to payment that the factor had acquiredan interest in.216. Bank of America v. Trinity Lighting, Inc.,2011 WL 3489693 (N.D. Ill. 2011)Account debtor could had a right, valid against buyer of account, to set off against its accountobligation the amounts the debtor owed to the account debtor from other, unrelatedtransactions and which obligations arose before the account debtor received notification ofthe assignment.217. U.S. Bank v. U.S. Rent a Car, Inc.,2011 WL 3648225 (D. Minn. 2011)Account debtor could use claims against debtor to reduce amount owed but not to seekaffirmative recovery from the secured party.218. Nova Bank v. Madison House Group,2011 WL 6028213 (D.N.J. 2011)Secured party with security interest in promissory note was not, after the debtor’s default,entitled to accelerate the obligation on the note or demand adequate assurance of futureperformance. Although the security agreement gave the secured party these rights againstthe debtor, neither the promissory note nor the law gave the debtor or the secured party theserights against the maker.219. Citywide Banks v. Armijo,2011 WL 4837501 (Colo. Ct. App. 2011)Bank with a security interest in and possession of negotiable promissory note secured bydeed of trust could not enforce obligation of maker who had paid the note in full to the debtorbecause the bank had allowed the debtor to service the loan and thus the debtor was thebank’s agent. No discussion of § 3-602.

Secured Transactions Update Page 44220. CapTran/Tanglewood LLC v. Thomas N. Thurlow & Associates,2011 WL 2969835 (S.D. Tex. 2011)Article 9 provides that a secured party may deduct from collections on collateral itsreasonable collection expenses, including attorney’s fees, but does not provide for recoveryof attorney’s fees against the account debtor.221. Vogel v. Onyx Acceptance Corp.,267 P.3d 1057 (Wyo. 2011)Buyer of chattel paper did not violate the Uniform Consumer Credit Code by chargingaccount debtors for the option of paying by phone or internet because that fee was notincident to the extension of credit, and thus did not constitute a “credit service charge” withinthe meaning of the UCCC, and the UCCC does not prohibit such an unenumerated fee.222. ITS Financial, LLC v. Advent Financial Services, LLC,823 F. Supp. 2d 758 (S.D. Ohio 2011)Debtor and guarantors had no standing to raise subordination agreement as a basis forinterfering with secured party’s collection against account debtor and, in any event, thesubordination agreement did not cover the account at issue.223. International Son-Ry’s Enterprises, Inc. v. B & T Pools, Inc.,718 S.E.2d 424 (N.C. Ct. App. 2011)Because subordination clause – including standstill requirement – was in the promissorynote, the debtor and guarantors had standing to raise the subordination agreement as adefense to an action against them on the note and guarantees.224. TFG-Illinois, L.P. v. United Maintenance Co., Inc.,2011 WL 5239728 (D. Utah 2011)Original equipment lessor that had assigned the lease to a bank but continued to service thelease had standing to sue the lessee because: (i) the return assignment from the bank to theoriginal lessor was valid even though not in writing; (ii) the lessee has no standing to raiseany statute of frauds problem that may exist with the return assignment; and (iii) its role asservicer gave it a pecuniary interest in the outcome even though it was not paid on apercentage basis.– Retaining Collateral225. Tex Star Motors, Inc. v. Regal Finance Co.,2012 WL 58945 (Tex. Ct. App. 2012)Chattel paper financier’s acceptance of cars from some account debtors in satisfaction oftheir debts did not release the debtor-car dealer of its liability for a deficiency based on itsobligation to repurchase nonperforming loans.

Secured Transactions Update Page 45226. Smith v. Community National Bank,344 S.W.3d 561 (Tex. Ct. App. 2011)Stipulation and agreed order by which bankruptcy trustee transferred of title to collateral tosecured party did not constitute an acceptance of the collateral in satisfaction of all or partof the secured obligation because neither the stipulation nor the order mentioned theindebtedness. As a result, the guarantor of the secured obligation was not discharged,although it would have to be given credit for any amounts the secured party collects througha disposition or from insurance.– Standing Issues227. Bank of America v. Bridgewater Condos, L.L.C.,2011 WL 5866932 (Mich. Ct. App. 2011)Bank with a security interest in condominium buyers’ rights in escrow agreements couldenforce the buyers’ right to recover the deposits due to the invalidity of the purchaseagreements.– Statute of Limitations228. Hassler v. Account Brokers of Larimer County, Inc.,274 P.3d 547 (Colo. 2012)Limitations period on secured debt began running on either the day the creditor was firstentitled to accelerate the debt or the day, shortly after repossession, that it did in factaccelerate, not the day when the disposition occurred and the resulting deficiency becameliquidated.229. Madison Capital Co., LLC v. S&S Salvage, LLC,794 F. Supp. 2d 735 (W.D. Ky. 2011)Secured party’s actions for conversion and trespass against buyer of collateral were barredby a two-year statute of limitations.– Other230. Lombard v. Station Square Inn Apartments Corp.,942 N.Y.S.2d 116 (N.Y. App. Div. 2012)Trial court erred in enjoining cooperative association that had security interest in shares tocooperative apartments from foreclosing on the shares. The debtor did not attempt to curethe default until almost 3 months after the expiration of the 10–day cure period in the noticeof default and thus failed to show a likelihood of success on the merits; the debtor also failedto show that he would sustain irreparable harm absent a preliminary injunction.

Secured Transactions Update Page 46231. Secure US, Inc. v. Security Alarm Financing Enterprises, Inc.,2012 WL 1253002 (N.D.W. Va. 2012)Secured party with prior perfected security interest in the debtor’s accounts was not entitledto prevent junior judgment lienor from selling the debtor’s accounts even though such a salemay not generate any proceeds for the judgment creditor.232. Newton v. Bank of McKenney,2012 WL 1752407 (E.D. Va. 2012)Servicemembers’ Civil Relief Act, which forbids secured parties from foreclosing on collateralowned by an active military member and pledged before activation, unless the creditorobtains court permission to do so, does not apply to collateral owned by a corporation thatthe service member in turn owns and controls.233. Johannsen v. Morgan Stanley Credit Corp.,2012 WL 90408 (E.D. Cal. 2012)Debtor’s claims that secured party mismanaged investment property serving as collateral andthat it was unconscionable for the secured party to acquire a security interest in both theinvestment property and real property to secure a residential real property loan were bothsubject to arbitration.234. FDIC. v. Katzowitz,2012 WL 368672 (E.D. Mich. 2012)Nominal borrower who signed promissory note waiving any defense relating to the lender’sfailure “to realize upon the Collateral” had no defense based on the lender’s release ofcollateral to the person who received the loan proceeds. Even if the release violated the dutyto dispose of the collateral in a commercially reasonable manner, it would not bar adeficiency action but merely result in a reduction of the deficiency.235. FDIC v. Cashion,2012 WL 1098619 (W.D.N.C. 2012)Promissory note that expressly provides that the lender may “fail to realize upon . . . thecollateral” does not require the lender’s assignee to seek recovery from the collateral beforeobtaining a judgment on the note.236. Chuhar v. AMCO Insurance Co.,2012 WL 589369 (N.D. Ind. 2011)Bank with a mortgage and security interest in motel and related personal property, and whichwas a loss payee and additional insured under the debtor’s insurance policy, could besubstituted for the debtor in the his pending action against the insurer or breach of theproperty damage coverage and the claim for bad faith relating thereto but not for breach ofthe policy provision covering lost business revenue or the claim for bad faith relating theretobecause the bank had not been assigned an interest in the loss of business policy provision.

Secured Transactions Update Page 47237. Amegy Bank v. Monarch Flight II, LLC,2011 WL 4948986 (S.D. Tex. 2011)Even though the debtor had sold the collateral, the secured party was not entitled to apreliminary injunction freezing the debtor’s assets because the secured party had not showna likely irreparable injury due to the fact that its damages would be fully compensable by amonetary award and the debtor testified that he had a substantial net worth. No constructivetrust was appropriate because the secured party was not seeking to recover a specific assetand had not proven fraud, despite evidence that the debtor had made misrepresentations.238. Ford Motor Co., LLC v. Heinrich,808 N.W.2d 174 (Wis. Ct. App. 2011)Claim preclusion did not bar secured party’s action on the secured obligation even thoughthe secured party had previously obtained a judgment and writ of replevin for collateral; thesecured party did not recover the collateral because the sheriff was unable to execute the writ.239. Fifth Third Bank v. Rivera,2012 WL 1831460 (M.D. Fla. 2012)Secured party’s action against the debtor was not subject to arbitration even though thecollateralized brokerage account – for which an affiliate of the secured party was the broker –contained an arbitration clause because the secured party itself neither signed nor benefittedfrom the brokerage account agreement and there was no allegation that it even knew of thearbitration clause.240. Camelot Entertainment Inc. v. Incentive Capital LLC,2011 WL 4477317 (C.D. Cal. 2011)Mandatory forum selection clause in security agreements was binding even though thedebtor’s note contained a non-exclusive forum selection clause and the parties’ escrowagreement contained no forum selection clause because the debtor’s claim related to thecollateral and was therefore inextricably bound up with the security agreements.241. Alabama Title Loans, Inc. v. White,80 So. 3d 887 (Ala. 2011)Debtor who claimed repossession agent assaulted her and repossessed car after loan had beenpaid in full had to arbitrate claim because the loan agreement provided that its arbitrationclause “shall survive the repayment of all amounts owed” and because the arbitration clausecovered all claims, including tort claims, that “relate[] to this Agreement or the Vehicle,” notmerely those arising under the contract.

Secured Transactions Update Page 48242. Shah v. Santander Consumer USA, Inc.,2011 WL 5570791 (D. Conn. 2011)Language in security agreement that provided for arbitration of any “claim or dispute arisingfrom this Contract of whatever nature” was a broad clause even though it did not refer todisputes “relating to” the agreement or the parties’ relationship, and it therefore encompassedthe debtor’s action for the secured party’s alleged failure to comply with state statutesrequiring a post-repossession notice and disclosure of certain consumer rights even thoughsuch an action did not require interpretation of the security agreement.Liability Issues– of the Secured Party243. Sadowski v. Commissioner of Revenue,2012 WL 1414924 (Minn. Tax. Ct. 2012)Secured party who, after the debtor’s default, exercised his rights in the debtor’s pledgedcorporate stock to become the sole director of the corporation, was personally liable for thecorporation’s unpaid sales tax liability incurred prior to when the secured party took controlbecause, after he took control, he was the person responsible for filing the returns and payingthe taxes, there were corporate funds available to pay the taxes, but the funds were used forother purposes. The secured party’s lack of knowledge about the lax liability and lack ofaccess to the corporation’s records was not material.244. Huffman v. Credit Union of Texas,2011 WL 5008309 (W.D. Mo. 2011)The statutory damages available under § 9-625 do not make that provision a penal statute andtherefore the limitations period in Missouri for a claim based on an allegedly deficientpre-sale notification was the general 5-year period for actions relating to “liability created bya statute other than a penalty.”245. Great Western Bank v. Branhan,804 N.W.2d 447 (S.D. 2011)Because the debtors had agreed, after default, to surrender and transfer collateralized stockto the secured party, and the value of that stock was used in calculating the amount of adeficiency judgment, the secured party was entitled to retain the stock issuer’s refund,announced and made after the debtors paid the deficiency, of a prior capital call.246. Homestead Finance Corp. v. Southwood Manor L.P.,956 N.E.2d 183 (Ind. Ct. App. 2011)State statute that makes lienholder on mobile home liable, upon notification from the ownerof the land, for ground rent until the mobile home is removed does not impose liability onsecured party for any rent accruing after it surrenders its lien.

Secured Transactions Update Page 49247. Symetra Life Insurance Co. v. Rapid Settlements, Ltd.,2011 WL 4807901 (S.D. Tex. 2011)Obligor on structured settlements had claim for tortious interference with contractualrelations against assignee of structured settlement payments that attempted to use arbitrationto avoid state statutes requiring court approval of the transfers because the assignee had nocolorable argument that arbitration could be used in such a manner.– of the Debtor248. BrooksGreenblatt, L.L.C. v. C. Martin Co., Inc.,2012 WL 911882 (M.D. La. 2012)Account debtor who improperly paid the debtor after receiving an instruction to pay thesecured party, and who later paid the secured party and received in return an assignment ofrights against the debtor and guarantors, had a valid action against the debtor for the sumsthe debtor received from the account debtor and failed to remit to the secured party.249. Klinker v. First Merchants Bank,964 N.E.2d 190 (Ind. 2012)Although summary judgment on contract claim was appropriate against car deal that had soldvehicles out of trust and lied about it, summary judgment was not appropriate on fraud claim– which gives rise to treble damages – because the requisite fraudulent intent was still adisputed factual issue.250. Exchange Bank of Missouri v. Gerlt,2012 WL 1850974 (Mo. Ct. App. 2012)Bank that sold collateralized logging truck without notification to the debtor failed to rebutpresumption that no deficiency was owing because the only evidence it provided was thebuyer’s testimony of what he was willing to pay, not what the truck was worth, and even ifthe testimony did relate to the truck’s value, it did not deal with what a complying dispositionwould have brought and the trial court was free to find that the testimony lacked credibility.251. United States v. Stevens,447 Fed. Appx. 488 (4th Cir. 2011)Debtor was guilty of transporting a stolen vehicle in interstate commerce, in violation of 18U.S.C. § 2312, because he transported a motorcycle with the intent to dispose of themotorcycle by selling it to a third party and knowing he was depriving the lienholder of itssecurity interest.

Secured Transactions Update Page 50252. United States v. Gilbert,2011 WL 652830 (E.D. Mich. 2011)2011 WL 5904429 (E.D. Mich. 2011)Debtors’ guilty plea embezzlement or theft of public property, in violation of 18 U.S.C.§ 641, by selling without permission cattle in which the United States had a security interestand not using the proceeds to pay the secured debt was rejected because the offense requiresgovernment ownership of the property, not a mere security interest. However, subsequentindictment for violating 15 U.S.C. § 714m, which criminalizes conversion of propertypledged to the Commodity Credit Corporation, would stand.253. Hollish v. Maners,2011 WL 4390156 (Ohio Ct. App. 2011)Debtor that resold business he had purchased remained liable for the balance of the purchaseprice even though the seller had failed to perfect his security interest in the business and thesubsequent purchaser had made payments on the debt for several years. The debtor failedto prove any novation or basis for waiver or estoppel.254. Wells Fargo Bank v. LaSalle Bank,2011 WL 2470635 (N.D. Ill. 2011)Claim against originator and seller of commercial mortgage loan originator for breach ofwarranties that origination met industry standards and that property appraisals satisfied theguidelines in FIRREA had to be dismissed because it failed to put the originator on noticeof what conduct deviated from industry standards or the reasons why the appraisals violatedFIRREA.– of Others255. Volvo Const. Equipment Rents, Inc. v. NRL Rentals, LLC,2012 WL 10893 (D. Nev. 2012)2012 WL 27658 (D. Nev. 2012)Secured party with security interest in deposit account had no cause of action for conversionor unjust enrichment against entity to whom the debtor sent a wire transfer from the depositaccount because the secured party made no effort to exercise its rights while the funds werein the debtor’s deposit account.256. BancorpSouth Bank v. 51 Concrete, LLC,2012 WL 1269180 (Tenn. Ct. App. 2012)Secured party that brought a conversion claim against the buyers of the debtor’s equipmentfor failing to turn over the proceeds they received upon resale has a right to attorney’s feesunder § 9-607(d) and under the security agreement with the original debtor, which becameeffective against the buyers under § 9-201(a).

Secured Transactions Update Page 51257. In re Fish & Fisher, Inc.,2012 WL 1027230 (Bankr. S.D. Miss. 2012)Secured party’s claim against the debtor’s law firm for negligently disbursing proceeds ofan arbitrated claim – which the secured party were proceeds of an account and imbued witha constructive trust – was dismissed because conversion requires an intentional act, notnegligence, and the secured party’s notification of its rights did not indicate how much it wasowed or demonstrate the priority of its security interest.258. Valley Community Bank v. Progressive Casualty Insurance Co.,2012 WL 581301 (N.D. Cal. 2012)Insurer that provided Bond and Safe Depository Coverage to bank that issued loanpurportedly secured by securities account maintained at brokerage firm was not liable forlosses the bank incurred because even if the control agreement was forged, the proximatecause of the loss was the fact that there were no securities.259. North Shore Bank v. Progressive Casualty Insurance Co.,674 F.3d 884 (7th Cir. 2012)Lender defrauded by borrower’s fake certificate of origin for motor home that was tocollateralize loan did not have action against its insurer because although the insurer agreedto indemnify the bank for losses resulting from “counterfeit” documents, the fake certificateof origin did not qualify as a counterfeit because it was a complete fabrication and there wasno original certificate for a motor home with the vehicle identification number listed.260. Repossession Specialists v. Geico Insurance Co.,33 A.3d 1242 (N.J. Super. Ct. 2012)Repossession company is not covered by debtor’s automobile insurance policy as someoneusing the vehicle with the debtor’s possession and thus insurer was not responsible forinjuries the debtor suffered when attempting to retrieve items from her vehicle asrepossession company was towing the vehicle away.261. Rawlinson v. Law Office of William M. Rudow, LLC,2012 WL 19666 (4th Cir. 2012)Aunt of debtor stated cause of action under the Fair Debt Collection Practices Act againstlaw firm that brought replevin action against her, as well as the debtor, on the theory that shelived with the debtor and therefore might be in possession of the collateral.262. NLRB v. Leiferman Enterprises, LLC,649 F.3d 873 (8th Cir. 2011)Entity that purchased debtor’s assets free and clear from court-appointed receiver was liable,as a successor-in-interest, for the debtor’s unfair labor practices because the purchaseracquired substantial assets of the debtor with knowledge of the pending unfair labor practicecharges and continued, without interruption or substantial change, the debtor’s businessoperation.

Secured Transactions Update Page 52263. Ortiz v. Green Bull, Inc.,2011 WL 5554522 (E.D.N.Y. 2011)Tort claimant pled a cause of action based on successor liability against the newly formedentity that, after debtor’s default, purchased the lender’s note and security interest, and thenentered into a collateral transfer agreement with the debtor pursuant to which it acquiredmost of the debtor’s assets. Although a de facto merger requires some continuity ofownership and the tort claimant pled that it lacked knowledge of any such continuity,dismissal was premature because the transactions were confidential and plaintiff was entitledto discovery on the issue.264. Fifth Third Bank v. Lincoln Financial Securities Corp.,453 Fed. Appx. 589 (6th Cir. 2011)Securities broker breached control agreement with customer’s secured party by either:(i) misrepresenting that the value of the customer’s account by including in the stated valuesecurities purchased with funds from a check that was later dishonored; or (ii) reversingtrades after the check was dishonored despite clauses in control agreement by which brokerpromised not to execute sell orders without the secured party’s consent and “waive[d] andrelease[d] all liens, encumbrances, claims and rights of setoff it may have.” The controlagreement was not rendered unenforceable for lack of consideration or mutuality or mistake.265. Bluwav Systems, LLC v. Durney,2011 WL 5375200 (E.D. Mich. 2011)Secured party’s assignee that conducted partial strict foreclosure of all collateral – includingthe debtor’s “contract rights” – thereby acquired all the debtor’s rights under a settlementagreement between the debtor and its former attorney, under which the former attorneyreleased claims and covenanted not to sue. The attorney’s later suit against the assigneebased on the same transactions as those underlying the settlement agreement constituted abreach of the settlement agreement, giving rise to the liquidated damages provided for in thesettlement agreement.266. Stanley Bank v. Parish,264 P.3d 491 (Kan. Ct. App. 2011)Although lien creditor’s sale of vehicle did not constitute conversion against secured partywith a prior security interest in the vehicle, both the lien creditor’s refusal to surrender theproceeds and the buyer’s refusal to surrender the vehicle were acts of conversion.267. Sequel Capital, LLC v. Pearson,2011 WL 4398108 (N.D. Ill. 2011)Trustee who received assignment for benefit of creditors could not have breached fiduciaryduty by failing to determine the value of the inventory or by compromising an action againstan account debtor after the senior secured party took control over the assets.

Secured Transactions Update Page 53268. In re Colusa Mushroom, Inc.,2011 WL 4433595 (Bankr. N.D. Cal. 2011)Members of unsecured creditors committee had no cause of action against committee’sattorney for failure to perfect security interest that debtor retained when it sold assets to athird party because any negligence was on the part of the debtor’s counsel, not the creditorscommittee’s counsel, who did not have the right or power to file a financing statement.269. DCFS USA, LLC v. District of Columbia,803 F. Supp. 2d 29 (D.D.C. 2011)District of Columbia violated secured creditor’s constitutional rights by selling impoundedvehicle free and clear of security interest without providing notice of the sale to the securedcreditor, whose predecessor’s interest was noted in the records of the Virginia office that hadissued a certificate of title for the vehicle.270. Cliff Findlay Automotive, LLC v. Olson,263 P.3d 664 (Ariz. Ct. App. 2011)Co-maker of promissory note secured by a new car was an accommodation party andtherefore had a partial defense to payment of the deficiency under § 3-605(d) based on thesecured party’s failure to timely perfect, which led to avoidance of the security interest as apreferential transfer in the other maker’s bankruptcy. The defense is limited to the value ofthe collateral lost.271. Buckner v. Gebhardt,2011 WL 4842371 (Cal. Ct. App. 2011)Former bail bondsman’s legal malpractice claim against his attorneys for failure to advisehim to retain a security interest in the business he sold was time barred because the cause ofaction accrued not after default when the buyer’s other lender perfected its security interestbut when the agreements were signed because the plaintiff was an experienced businessmanwho had recommended the other lender to the buyers and knew the other lender wouldrequire a security interest as a condition of making the loan.272. Schultze v. Chandler,2011 WL 6778823 (N.D. Cal. 2011)Attorney for unsecured creditors committee did not owe a duty to individual creditors outsidehis role as attorney for the committee and was therefore not liable for professionalmalpractice for failing to make sure that debtor’s attorney filed financing statement inconnection with a credit sale of the debtor’s assets, a transaction in which the attorney for thecreditors committee was not involved.